The Gap Analysis Setup tab allows for the quick configuration of a few of the general setup features.
Including a spouse in the retirement gap illustration is optional and is configured by selecting the desired setting. Note that if a spouse is not considered, both the Spouse and the Spouse Retirement Plan tabs will not bi visbile.
Model for Retirement Income
Select the model for taxation during retirement.
Tax Neutral Distributions
This method provides a quick method a quick method to do a retirement plan illustration for a client without considering taxation during retirement.
This method will apply an average tax rate to all accounts. Additional prompts will be added to the additional accounts (e.g. Retirement Investments, Known Income, etc).regarding account taxation.
Average Tax Rate
This prompt is displayed if the Average Tax method is selected. Enter the tax rate to be applied to taxable accounts.
Tax Wise Distributions Strategy
The Tax Wise Distribution Strategy uses the tax brackets (including federal and optionally state) during a client's retirement and provides control for how accounts are distributed based on the tax bracket.
There are two methods for using the Tax Wise Distribution Strategy
Account Type Distribution Control
This provides a threshold control for account distribution: a threshold can be entered and distributions from the accounts can be controlled by the different tax methods each account is subject to(specifically Fully Taxable, Partial Taxable Capital Gains and Non-Taxable). This control is available in the Retirement Years calculation page.
Specific Account Distribution Control
This selection determines if taxation, and distributions based on a client's taxation, should be taken into account for the client. When enabled, choose the desired distribution control (either overall or by specific account) and the tax distribution threshold. Click here for a discussion of the Tax Wise Distribution Strategy.
Default accumulation rates, distribution methods, and distribution rates of return can be assigned for the cash accounts. This includes 401(k) plans, TSP/Federal Savings Plan accounts (optional, configured in File/Config/Gap Analysis/Federal Plans) and Retirement Investments. This allows for easily changing the rates of return associated with the various cash balance accounts.
Use Glide Path for Cash Balance Accounts
Check this box to select a master (single) glide path for retirement accounts with cash balances (this includes a defined contribution retirement plan, both the pre-tax and Roth accounts, and Retirement Investment accounts. The Thrift Savings Plan, a.k.a. Federal Savings Accounts, can use the master glide path or can be configured separately). If this box is not checked, a different Glide Path may be selected for each account.
As a client approaches retirement, a client will often reduce their risk and at the same time reduce their rate of return earned on an account. Glide Paths allow for configuring changing rates of return as a person gets closer to retirement. A Glide Path may also optionally include a retirement rate of return. (TRAK ships with default glide paths that may be reconfigured, based on an advisor's preferences). To configure the Glide Paths, select Setup/Config/Glide Paths from the ribbon bar.
Use the same Accumulation Rate of Return for all Cash Balance Accounts
Check this box to use the same rate of return until retirement for all cash balance accounts.
Accumulation Rate of Return
Enter the rate of return earned by the cash balance account until retirement.
Use the same Distribution Method for all Cash Balance Accounts
Check this box to use the same account distribution method for all cash balance accounts.
Select the account distribution method to be used by the cash balance accounts.
Use the same Distribution Values for all Cash Balance Accounts
This prompt is only visible if the Use the same Distribution Method for all Cash Balance Accounts is checked.
Check this box to use the same distribution values for all accounts.
Payout Rate of Return, Payout Percent, and/or Annuity Rate
The visible prompts will depend upon the distribution method. Enter the appropriate values for the various inputs.
Clients want to protect their retirement assets from risk and market downturns but you know that those same assets need to last for their whole retirement. Balancing these two needs can be tricky but this feature in TRAK is designed to make it easy for an advisor to show their client the benefits of using income buckets as a retirement income strategy.
To illustrate a bucket strategy, click the box "Use Bucket Strategy" and a new tab will be added to configure the strategy. To learn more about this feature, click here.
TRAK will calculate the additional savings needed for a client to meet their retirement goals. Any income distributed in retirement that is above the client's determined need is automatically deposited into the Side Fund account. This "extra" income may occur due to the sale of an asset, excess RMDs, etc.
Interest rate prior to retirement and Interest rate in retirement
The rates of return entered here relate to interest rates the additional savings would earn.
Annually increase additional monthly savings with client's raise
When additional monthly savings are needed to solve a retirement gap, check this box if the monthly savings increases the same month the client's raise occurs.
This prompt is used for the Tax Wise Distribution Strategy (not shown above). It clarifies the income tax tiers to which the account may be distributed during retirement. The options include:
1.All Brackets: The account may be distributed in all tax brackets.
2.Highest Tax Brackets: The account may only be distributed in the highest tax bracket.
3.Highest Tax Brackets: The account may only be distributed in the highest (x) tax brackets, where (x) is the value entered in the Tax Inclusion Value prompt (next input).
4.Tax Brackets At or Above Value: The account may be distributed in tax brackets at or above the tax rate entered in Tax Inclusion Value prompt (next input).
5.Lower Tax Brackets: The account is distributed in the lowest (x) tax brackets, where (x) is the value as entered in the Tax Inclusion Value prompt (next input).
6.Tax Brackets At or Below Value: The account may be distributed in tax brackets at or below the tax rate entered in the Tax Inclusion Value prompt (next input).
Tax Inclusion Value
This prompt is used for the Tax Wise Distribution Strategy (not shown above). This selection is enabled depending upon the chosen option in the prior prompt (Tax Tier Inclusion) and is the value corresponding to that option.
These options determine if funds distributed from an account can be accessed when a shortfall would otherwise occur. For example:
With retirement savings accounts that have cash balances during retirement, a number of payout methods may be selected that restrict distribution to the account (e.g. "Amortize with Inflation"). If this box is checked, and there is an income shortfall, TRAK will override the restricted distribution and take money from the account.