A: Yes it does. After you've signed up, you can create a plan either for a single person or for a couple.
A: We are aware of a number of programs that set out to capture every last detail about your financial life. You would need to invest a great deal of time and effort to provide all that information (far more than for EvolveMyRetirement®). They then make future projections using equally detailed rules, but these are underpinned by crude assumptions: for example, that investment growth will be identical every year, and will never fall, or that there's no need to project beyond a fixed arbitrary time horizon. This is nothing like the real world, in which investment returns fluctuate from year to year, sometimes dramatically, and in which none of us can predict with confidence how long we will live.
The philosophy of EvolveMyRetirement® is to capture your finances and your attitudes in just enough detail so that the program can fill in the remaining gaps and go on to make future projections. Our program takes into account the uncertainty of investment returns, property prices, inflation and longevity, so that your confidence in the results can be much higher. However we do not aim to take the place of an independent financial advisor, and we strongly recommend that you consult one before putting any generated strategy into practice. To make this easy, you can share your plan directly with your financial advisor.
A: The purpose of EvolveMyRetirement® is not to give you specific investment advice, but rather to arrive at a high-level strategy geared towards sustainable spending, consistent with your stated attitudes to risk and leaving a legacy. The program makes assumptions, which you can adjust if you want, about investment returns, in terms of both average returns and volatility. Specific advice on how to achieve such returns is beyond the scope of this website, and should be sought from an independent financial advisor.
A: Even though this could be done in theory, it would involve adjusting the utility value of early retirement compared with having extra discretionary spending. The problem lies in quantifying the benefits of an extra year of free time, compared with having, say, £1000 a year less to spend for the rest of your life. We've taken the view that these sort of judgements are too subjective to automate reliably. We've therefore left retirement dates to be adjusted manually, at least for now.
A: EvolveMyRetirement® is designed to cater for most peoples' needs. There may be some circumstances when the right choice of inputs is not obvious. Please feel free tocontact usif you would like assistance.
A: EvolveMyRetirement® uses mortality tables published by the Office for National Statistics. Based on gender and date of birth, a person's life expectancy is determined based on probabilities found in the mortality tables, and randomised during each Monte Carlo Simulation. In cases where a plan member has either impaired health or unusually good health, you are able to specify a biological age that's more or less than the person's actual chronological age. It should be borne in mind that wrongly assuming impaired health may skew the results towards over-spending, so this feature should only be used with caution based on professional advice.
A: The main factors that impact annuity rates are life expectancy and gilt yields. Annuity rates don't fluctuate as much as some financial markets, but they do tend to vary gradually over time. Rather than second-guess the future movement of annuity rates, EvolveMyRetirement® only uses current annuity rates in its calculations, which are updated periodically. If annuity rates change significantly in the future, then your strategy may show different results, and further optimising it may well improve it.
A: The UK government provide an online service that will help you find this out. Alternatively, you could ask your financial advisor.
A: You can, if you want, defer the start date of your state pension, in order to increase your annual pension amount. This can sometimes be beneficial provided you're in good health, and have a long life expectancy. There's information from the UK government about this. You should also talk to your financial advisor about it.
A: When you create your plan, it's given a number of assumptions. You can view these in the Assumptions section on the Plan page, where you can modify them if you wish. We believe that the default values make sense, but we don't assume that we necessarily know best. If you share your plan with a financial advisor, and they consider some of these assumptions too optimistic or pessimistic, they (or you) can easily change them.
If you're a Premium User, you can create multiple plans based on default assumptions that you can customise.
A: Economists use the word 'utility' to describe the usefulness of something. A utility is expressed as a number, so the bigger the utility value something has, the more useful it is considered to be. A utility can be calculated for every strategy. The higher the value of the utility, the better the strategy is deemed to be in meeting the objectives of the plan's members.
To calculate a strategy's utility, EvolveMyRetirement® runs a Monte Carlo Simulation. This simulates possible scenarios over and over again, randomising where there are uncertainties according to built-in probability distributions. In some scenarios the plan members may run out of money. In others, investment returns may be exceptionally high and the members may leave a huge legacy. The results of all the scenarios are analysed, taking the following factors into account in this analysis:
• The level of spending achieved in each scenario.
• The likelihood of running out of money.
• The likelihood of ending up with negative net worth.
• The size of any legacy.
• The importance to the plan members of leaving a legacy.
• The plan members' risk aversion.
A: Some possible reasons for this could be:
• If the setting is for discretionary spending, then lowering the risk means lowering spending, which you'd like to keep as high as possible. The optimisation will have found a balance between risk and reward, based on your stated attitude to risk.
• If you've indicated a desire to leave a legacy, then the optimised setting may offer better chances of doing so than a lower-risk setting. Once again, the optimisation will have balanced risk against reward.
• A small apparent difference in risk may be within the margin of error of the Monte Carlo Simulation.
A: The assumptions (which you can view at the bottom of the Plan page) represent things that you cannot control, but that you can estimate. We've provided a set of default assumptions, which we believe are reasonable and sensibly cautious. No doubt some economists and financial advisors may disagree with our settings, and would have chosen different ones. That's why we've made our assumptions configurable.
Whatever set of assumptions you start with, EvolveMyRetirement® will optimise your strategy taking them into account. It's almost inevitable that the resulting strategy will be highly sensitive to some (but not all) of the assumptions. That's why it's so important that they're reasonable and not overly optimistic. If you are unsure about the assumption settings, we recommend that you share your plan with an independent financial advisor, who can review them.
A: It's not impossible, but it may be counter-intuitive. It can happen with certain settings in your Strategy relating to buying new annuities (known as annuitisation). Suppose your strategy says that you'll buy annuities provided they'll cover a certain percentage of your spending. Then if at some point in the future that condition is met, you'll convert some of your net worth into annuities thus reducing your potential legacy. But if you increase your discretionary spending from the start then there's less chance that you'll meet the annuitisation condition, in which case you won't convert any of your net worth into annuities so there'll be more potential legacy. You don't get something for nothing though: if you increase your discretionary spending and in so doing avoid buying annuities, then your risk of running out of money will increase.
A: Once is unlikely to be enough. Your circumstances can change in many possible ways. For example:
• You might gain an unexpected promotion with higher pay.
• Markets might rise or fall significantly resulting in a revaluation of your assets.
• Annuity rates might change significantly.
• You might be made redundant.
• You might develop an overwhelming urge to retire early.
• You might decide you want to continue work past your originally planned retirement date.
• You might receive an unexpected windfall.
• There might be a significant increase in your expenses.
• You or your partner might develop health problems.
• You might alter your attitude to leaving a legacy if you subsequently have children.
• You might outlive your partner.
The optimal level of discretionary spending is based on the known facts at the time that a strategy is optimised. In the words of the economist John Maynard Keynes: "When the facts change I change my mind. What do you do, sir?" So the answer to the question as to how often to re-optimise your strategy is: Whenever the facts change!
A: Part of the answer could be that in many of the trials in which you ran out of money, this happened very soon before the last member of the plan died, which would have mitigated the negative aspects to some extent. It could also be that running out of money often occurred when you were still asset-rich, implying that lifestyle changes, whilst undesirable, would be possible to avoid total disaster.
The calculated chance of your running out of money may have assumed that your discretionary spending will stay the same in real terms, year in, year out. Your circumstances are likely to change in the future as discussed in the answer to the previous question. Unless you've already done so, you might consider allowing the program to vary your discretionary spending over time: your chance of running out of money should then be reduced. This setting is on the Plan page.
A: At the start of each year of projection, the program compares your net worth (adjusted for any new annuities it may have bought during projection) with what it would have expected in the average case (i.e. with no uncertainty). The ratio of these two values is then used to proportionately vary your discretionary spending up or down for the following year. Any increased (but not decreased) spending is tempered according to the importance of leaving a legacy as specified in the plan; if the plan has specified the maximum legacy importance, real spending will never be higher than at the start. This approach is not guaranteed to avoid running out of money, but other things being equal it reduces the risk. It also helps you avoid spending too little when things go better than expected.
Rather than copying this approach yourself each year, you'll get even better results by keeping your plan up to date and re-optimising your strategy from time to time. When you re-optimise, the program treats today as the first day of the rest of your life: it doesn't fret over past mishaps.
A: That depends on what you want the program to tell you. When you don't check the box, it gives you results based on a constant level of discretionary spending, in real terms. Traditionally, this is what most people have assumed that retirement would be like. Leaving the box unchecked gives you a picture of such a 'traditional' retirement. However this is unlikely to reflect your future reality, unless perhaps you're able to fund it entirely from defined benefit pensions.
Nowadays most people fund some or most of their retirement by drawdown of their pension funds, savings and other assets. If you check the box, the program will adapt to any over- or under-performance of your investments by varying your discretionary spending. The advantage of this is that you'll probably be able to afford to start off with slightly higher spending and still have a smaller chance of running out of money. The disadvantage is that budgeting your discretionary spending for the long term requires more flexibility.
We believe a prudent approach is to leave the box unchecked during optimisation, but then to check it afterwards to see how that improves the results.
Whether or not you check the box, remember that the program treats today as the starting point for its projections. At some future date you'll need to update your plan based on any changes to your financial circumstances. Between now and then, some of what were just possibilities will have crystallised into certainties. When you re-optimise you strategy, your results should become more reliable.
A: The pension figures you entered for employments and self-employments represent what you're currently paying in. The strategy, on the other hand, is telling you a target percentage, which could represent more or less than you're currently paying in. If it's more, then when the program projects your plan into the future it will use the higher amount, subject to sufficient funds being available.
In fact, even this percentage may be exceeded if there are surplus funds to invest, since the program attempts to mitigate income tax via tax-efficient investments. However this is capped via the strategy setting for the maximum percentage of earnings. A cap is not important for all members. The reason a cap might be important would be to avoid exceeding the pension lifetime allowance, or to avoid cash flow problems.
A: If you've been using EvolveMyRetirement® for a while, you may remember there used to be a strategy setting for the percentage of pension funds to draw down each year. One of the major considerations when choosing a drawdown level is income tax. By drawing down a fixed percentage of a variable pension pot, it wasn't possible to accurately optimise income tax band(s). So we looked for a better way to achieve this.
We considered changing the strategy setting to a fixed drawdown amount for each member, rising each year with inflation. This didn't quite address the taxation issue, since income from other sources might well vary over time, which could push total income into an unnecessarily high tax bracket. For example your state pension may start after retirement; or your investments may generate higher taxable income.
So we finally decided on a setting for the target taxable income in retirement for each member, rising each year with inflation. For a member who's not yet retired the effect doesn't kick in till retirement. The program calculates the pension drawdown amount for each year of retirement taking into account all other sources of taxable income, so that the total taxable income reaches the target. This means that drawdown is dynamic rather than following a fixed formula. This is the most tax-efficient approach.
When the program optimises your strategy, it arrives at a setting for the target taxable income that balances several competing influences:
• The cash flow needs to cover outgoings.
• The efficient utilisation of income tax allowances and bands during the lifetime of each member.
• The desirability to leave pension funds in order to minimise inheritance tax.
• The stated importance of leaving a legacy.
A: Actually, you can view bar charts from the Results page, once you've entered your information and generated a strategy. Many other tools prominently display bar charts, and use them to determine if you're 'on track'. This can be highly misleading. EvolveMyRetirement® uses Monte Carlo Simulation by running thousands of scenarios, and working out the chances of a satisfactory financial outcome. On the Results page, you can see the results of this Monte Carlo Simulation, presented as pie charts. But you can also view randomly generated scenarios as bar charts, as well as a scenario that uses average values. None of these scenarios are meant to be relied upon as accurate in isolation, but to serve as illustrations of how the future might unfold.
A: Absolutely not! EvolveMyRetirement® is not intended to replace professional financial advice. Even though it's able to suggest a strategy, putting it into practice requires significant expertise and discipline. In any case, the output of any computer program is only ever as good as its input. We strongly recommend that you share your plan with an independent financial advisor. They can validate your plan before you make irreversible changes to your current approach to financial planning.
A: Yes it is. When you sign up, you automatically get the ability to create one financial plan, which can be for either a single person or a couple. You can also subscribe to become a Premium User, which lets you create an unlimited number of plans. What's more, you can collaborate with your clients by means of shared access to their plans, so you can both see exactly the same information.
A: No, any user can become a Premium User in order to gain access to the additional features.
A: There are numerous advantages:
• You can create as many plans as you want, instead of being limited to just one plan. This is especially important for financial advisors having many clients.
• If someone else has created a plan and requested to share it with you, you'll have full access to it, including editing and optimisation.
• If you've created a plan on behalf of someone else, you can collaborate with them by transferring ownership of the plan to them. You'll still retain shared access to it (unless the new plan owner decides otherwise).
• You can make duplicate copies of your plans. Originals and copies can be modified independently of each other. This makes it convenient to try out different settings and what-if scenarios.
• Before optimising a strategy you can optionally lock, or fix, the values of one or more of the strategy settings.
• You can run unlimited sensitivity analyses on the results of any plan to which you have access.
• You can run unlimited survival analyses, showing the likelihood of plan members' survival into the future and the corresponding statistical spread of a plan's net worth.
• You can customise the assumptions you use for new plans you create, and propagate the customised assumptions to existing plans that were based on your previous assumption settings.
• Extra optimisation credits.
• Prioritised access to our fastest servers. Because of this, accessing your results after modifying your plan (which requires Monte Carlo simulation) is consistently fast.
A: After you've signed up you'll see a button on the Plan page to become a Premium User.
A: To manually edit your strategy, you need to take out a Standard subscription (or a Premium subscription if you prefer). You'll find the buttons for this on the Plan page.
A: Each optimisation done by EvolveMyRetirement® uses a Genetic Algorithm, which is based on similar principles to the way in which biological organisms evolve through breeding and mutation. Although the evolutionary trend is towards better and better strategies, the path taken depends on numerous random factors. Indeed, the very nature of the problem of retirement planning involves uncertainty. For an optimisation to generate the theoretically ideal strategy could require unlimited time.
It may also be the case that the program considers two or more strategies equally optimal, even though there may be certain differences. Reasons for this might be:
• Increasing the value of a particular setting beyond a certain amount has no effect on the results. For example, it might make no practical difference whether a 60 year old starts rebalancing investments in 35 years time or in 40 years time.
• There's a trade-off between risk and reward. Changing one setting may increase reward just enough to compensate for the increased risk in changing another setting. For example, increasing discretionary spending beyond a certain amount will naturally increase risk. In some cases, the program may consider that the benefit of the increased spending exactly balances the increased risk, based on the user's stated risk tolerance.
A: If all the strategy settings were independent of each other, this approach might work though it would be very time-consuming. However the strategy settings are actually related to each other via a web of interdependencies. Changing one setting can require a compensating change in another, which in turn can require a compensating change in yet another, and so on. Because of this, manual optimisation is impractical, except perhaps for fine-tuning.
Whenever you believe your strategy to be out of date, the best way to improve it is first to let the program optimise it, before making any minor manual adjustments.
A: When projecting your plan into the future, the program uses the settings in your strategy in conjunction with built-in rules, to decide each year of your life what to do next. This could be during a Monte Carlo simulation involving many trials, or during a single scenario that you've requested on the Results page. The underlying rules are:
• After essential and discretionary spending are taken into account, any cash left over is reinvested in a tax-efficient way according to the level of risk indicated in the strategy. Allowances for pension and ISA contributions are utilised as far as possible.
• Where income is insufficient to cover spending, liquid assets are sold to meet the shortfall, priority being given to the least tax-efficient assets.
• Various numbers may change randomly from year to year, according of the rules of probability in your assumptions, which are set at the bottom of the Plan page. Randomisation includes the rate of inflation, investment growth rates and property growth rates. Also, if you've specified a range of bonuses for an employment, then the bonus each year will be randomised within that range. Your changed financial position each year take into account all randomly generated values.
• Investments are gradually rebalanced from the starting level of risk towards the terminal level of risk, as specified in the strategy. This is sometimes known as a 'glide path'. Lower risk means less random but smaller returns on average, whereas higher risk means more random but greater returns on average.
• A target proportion of total spending is specified by the strategy to control the purchase of new annuities, once any member has retired. Each year, new annuities are bought only if the resultant total annuity income (including any existing annuities and defined benefit pension income) fully covers the target proportion of spending.
• The growth rate of any new annuities is determined by the setting in your strategy, which can be either Level, Fixed or Indexed.
• If there are two members, new annuities are allocated between the members as specified by the strategy.
• Any cash flow shortfall after using all sources of income is made up by drawing down on investments, subject to any restrictions on withdrawals (e.g. from pension funds).
• When members retire, they take any available tax-free lump sum from their pension plan(s) according to the strategy. If phased drawdown is enabled they only take the tax free portion pro rata to any taxable withdrawals. If drawdown is not phased then they take the full tax free lump sum from their pension plans immediately. Unless needed to cover outgoings, the lump sums are reinvested utilising any available ISA allowances.
• For retired members in pension drawdown, the level of drawdown is normally determined by the strategy, but may be exceeded should other sources of cash be insufficient.
• If there is still a cash flow shortfall, any extensible and repayable debts are drawn upon, including an assumed overdraft facility based upon a combination of the current net worth and gross income.
• If this is still insufficient, equity is released as a loan if possible, based on the value of any owned main home and/or other properties or land. For some, alternatives to equity release may be preferable, such as downsizing a main home or selling a second home. But as these other courses of action are more disruptive to lifestyle, the program assumes equity release for modelling purposes.
• If all of the above steps fail to raise sufficient cash then the plan is deemed to be insolvent. However the program still continues projecting until the death of the last member but with zero discretionary spending. Any cash shortfall is filled by borrowing at a punitive interest rate (5% higher than the unsecured rate specified in the assumptions). In real life of course, any owned properties would be sold to pay off existing loans. The punitive interest rate assumed by the program is designed to reflect the fact that being forced to sell up is highly disruptive to lifestyle, and to 'discourage' insolvency. In some cases a scenario may end up with negative net worth (ruin); unsurprisingly the program treats this as the most undesirable outcome of all.
A: The system calculates the required spending for the year ahead, and uses any income streams to pay for it. If there's not enough income to pay for all spending, this is shown as an unallocated cash deficit, which is made up at the start of the following year by drawing down on invested assets or, if necessary, by borrowing.
This approach simplifies the modelling. It's analogous to running up an interest-free credit card bill over the course of a year, and paying it off at the start of the following year.
A plan is only deemed to be insolvent if the end-of-year deficit cannot be cleared. Otherwise, a negative value is quite normal.
A: You're asking about what's often referred to as the glide path to retirement. It's true that according to received wisdom, the glide path should complete before retirement. When EvolveMyRetirement® optimises your strategy, it doesn't start with any opinion on whether investment risk should be decreased, increased or left constant. Nor does it assume any particular timescale for such a rebalancing, including whether it should start or finish before, at or after retirement. It arrives at an optimised strategy based solely on the best outcomes after thousands of Monte Carlo simulations.
Received wisdom is sometimes right, but not always and not for everyone. We've often been surprised by the optimised strategies produced by EvolveMyRetirement®, as they're sometimes quite different from what we'd have guessed. But our guesses are nearly always inferior.
A: Yes. EvolveMyRetirement® incorporates current rates and bands for income tax, national insurance, capital gains tax and inheritance tax, and makes corresponding deductions in its projections. Regional tax differences (currently only in Scotland) are taken into account, based on the UK postcode entered for the plan. Tax relief on ISAs and pension plans are also taken into account, as are additional taxes for exceeding the pensions lifetime allowance.
Please bear in mind that the program only takes into account what you have entered into the program, so the calculated tax may only be an approximation, though close enough for most planning purposes.
A: Projections made by tools on a straight-line basis are highly questionable. As a simple example, let's assume that certain investments are expected to grow on average by 7% each year. Then an investment of £10,000 would be projected to double to £20,000 in 10 years, on average. However, to make a financial plan that depended on this doubling would be highly risky: there's a 50-50 chance that returns after 10 years will turn out to be less than double, perhaps much less, in which case our plan would fail. How badly it might fail depends on the type of assets we've invested in.
This is not to say that higher risk investments such as shares are to be avoided, but merely that planning based on straight-line projections is far too simplistic. The effects of volatility and uncertainty are felt even more acutely when drawing down investments during retirement. It is far harder to recover from a stockmarket dip that occurs early on in retirement than from one that occurs during one's working life. Sound planning must take into account such risks.
A: Your lifetime contingency represents expenditure that's impossible to foresee now with accuracy. Because it's unforeseen, it's a matter of judgement as to how much you should estimate. We recommend consulting an independent financial advisor to assist in making this kind of judgement. If you share your plan with a financial advisor, you can ask them to enter this information for you. Also, it may be possible and beneficial to take out insurance policies against certain contingencies, to help reduce the necessary size of your lifetime contingency.
A: Not at all! All calculations and optimisations take place on our powerful computers, not on your own computer.
A: No! The only thing that may be slower is getting the optimised strategy back to your browser, once the optimisation has completed running. However, since the amount of information to be uploaded is quite small, this should not be a problem. This is no different from accessing other pages or other websites.
A: Yes. If you don't want to use EvolveMyRetirement® anymore and would like everything that you've entered to be deleted, you can do this from the Settings page once you're logged in. Please bear in mind that if you later decide to sign up again you'll have to re-enter everything from scratch.
A: EvolveMyRetirement® is created and owned by Okinawa Zest Limited, a company that is wholly independent of financial institutions, and which provides financial planning software that is not biased towards any specific types of investment. Please feel free tocontact usfor further company information.