Running a Sustainable Scenario
You can enter a client's After-Tax Spending (ATS) to help determine how long your client’s money will last.
In some scenarios, it won't last as long as desired, while in others, the client may outlive their savings.
The Sustainable Spending tile within the Recommendations feature helps you show the constant level of spending that can be sustained without running out of Capital Assets until the last year of the projection; essentially calculating how much they can afford to spend every year so they will not outlive their money.
In this article:
How to run a Sustainable Scenario
From the Client, Spouse, or Combined Planning page, click the Recommendations button.
The following popup window will open up. You can either click the Calculate button in the Sustainable Spending tile to start the calculations at the default age provided, or you can modify the age at which you want to start these calculations. You can start Sustainable Spending at any age equal to or greater than the CFM Start Age which is set on the Planning page.
How to avoid shortfalls in a Sustainable Scenario
The Sustainable Spending tile within the Recommendations feature helps you show the constant level of spending that can be sustained without running out of Capital Assets until the last year of projection; essentially calculating how much your clients can afford to spend every year so they will not outlive their money. The software will calculate the spending in order to reach this goal.
You may find that individual years within the projection have a shortfall. This can happen if the level of spending is too high for a certain year. There is no constraint to block shortfalls within the projections when running a Sustainable Scenario. The calculated level of spending may be too high for some years of the projections, but this is allowed within the calculations. If any debt is built up, the Sustainable Scenario criteria will be satisfied as long as that debt can be paid off by the end of the projections. If there is a shortfall at the end of projections, it will be balanced out by the amount remaining in the Capital Assets.
There are a few situations where you might see a shortfall when running a Sustainable Scenario:
- If there are contribution overrides for any of the accounts - These will be highlighted in yellow and will block the software from automatically withdrawing from the assets to reach the spending goal. You can clear the overrides to allow the software to withdraw from the account. (If you don't want Snap to use the funds from a specific account during the Sustainable Scenario, it is easiest to delete that asset from the projections altogether since it is not included as a resource for the retirement projections.)
- If there are additional income sources that begin over the projection - If there are new incomes starting in future years (i.e., CPP, OAS, or a pension starting later in the projection) then the software may run a shortfall in the early years and then pay off the accumulated debt in the future once the additional income is available. You can reduce the After-Tax spending amount prior to the year where the additional income starts. Then run a Sustainable Scenario from that point on.
- If there is a LIF account - If there is a LIF account in the projections, the software may not be able to withdraw enough money in some years to reach the sustainable spending amount due to the annual maximum withdrawal limit. (Options: 1. You can reduce the After-Tax Spending and run a regular scenario rather than a Sustainable Scenario, 2. You can consider unlocking a portion of the LIF at retirement and/or converting to a LIF account at an earlier age.)
- If there is lump-sum income during the projections - For example, an influx of cash from the sale of a real asset, an inheritance, or an insurance policy payout. If one of these occurs within the projection, the sustainable spending amount might be too high before this payout and you would see a shortfall in those earlier years. You can reduce the After-Tax spending amount prior to the year where the lump-sum income is received. Then run a Sustainable Scenario from that point on.
Note: For clients who own corporate investment accounts: Keep in mind that assets from corporations are not automatically included in Sustainable Scenarios. You will need to manually set up dividends from any existing corporations to distribute the corporate assets to the client.