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Income Estimations, Limitations, Assumptions, and Classifications

VALIC Financial Advisors

Your VALIC Financial Advisor, Inc. (VFA) accounts and Polaris Elite and Power Index Elite accounts are NOT systematically included in these calculations. To include these accounts, select recalculate and add them as an "Other Asset" in the Asset section.

Income Estimations

FutureFIT displays the difference between an estimated retirement income and your retirement income goal. The estimated retirement incomes are based on 500 “Monte Carlo” simulations of possible economic and financial market scenarios, and cover a time period that extends until life expectancy. The simulations assume all assets are depleted in the final year of life.

The results are based on simulations of how the asset allocation defined in your inputs may perform under a wide variety of market conditions. The results illustrated are considered conservative – or representative of “fair” market conditions – because 70% of the simulated market scenarios have outcomes that equal or exceed the displayed result. But you are not limited to viewing results under fair market conditions. FutureFIT also displays simulation results under “average” and “poor” market conditions – where 50% or 90% of the simulated market scenarios, respectively, have outcomes that equal or exceed the displayed result. (See the chart below)

Market performance assumptions

Percentage of investment scenarios achieving and/or exceeding the displayed result

Fair (if market performs lower than historical averages)

70%

Poor (if market performs significantly lower than historical averages)

90%

Average (if market performs consistent with historical averages)

50%

 

Limitations

Although historical data is used, the simulations may not specifically match what has occurred in the market historically and may factor in more or less economic volatility, such as market extremes. Additionally, FutureFIT uses financial data provided by third-party vendors for use in the Monte Carlo simulations and the accuracy or timeliness of that data cannot be guaranteed.

Personal Data and Assumptions

The estimated retirement incomes may incorporate the following information and assumptions:

  • Current age
  • Current annual income
  • Current retirement assets and corresponding asset allocation
  • Desired retirement income
  • Desired retirement age
  • Number of dependents
  • Consistent contribution amount/percentage
  • Annual inflation of 2%
  • Time horizon
  • Social Security and other income benefits (e.g., pensions)
  • Expenses
  • Annual salary increases by assumed inflation rate
  • Mortality assumptions
  • All contributions are pretax including nonqualified accounts
  • All distributions are taxable (i.e., taxes are applied to provide after-tax result)

Investment return assumptions are updated annually and may have a material impact on the estimated retirement incomes. Investment return assumptions are estimates not guarantees. The investment returns you experience may be materially different than those illustrated.

Classifications

FutureFIT employs different returns statistics for different asset classes, based on Morningstar's capital market assumptions developed using historical and forward-looking data. The allocation of your current assets is specified across five core Morningstar asset class categories. Average investment expenses are incorporated into the simulations. Some asset classes have relatively limited histories so less historical data is available to model. Within each asset class a level of diversity is assumed that is consistent with a market index benchmark.

Asset Class

Benchmark/Index

Large Cap

Russell 1000 TR

Small/Mid Cap

Russell 2500 TR

International Equity

MSCI EAFE GR

Bonds Barclays Capital US Agg Bond TR
Cash BofA ML US Treasury Bill 3 Month

Keep in mind, the benchmark may differ from the diversity of your own portfolio. You cannot invest directly in an index.

Definitions of Indexes 

BofA Merrill Lynch US 3-Month Treasury Bill -- Comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month that issue is sold and rolled into a newly selected issue. The issue selected at each month-end rebalancing is the outstanding Treasury Bill that matures closest to, but not beyond, three months from the rebalancing date. To qualify for selection, an issue must have settled on or before the month-end rebalancing date. While the index will often hold the Treasury Bill issued at the most recent 3-month auction, it is also possible for a seasoned 6-month Bill to be selected.

Barclays Capital US Aggregate Bond Index -- Broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS.

MSCI EAFE Index -- Measures international performance and comprises 21 MSCI country indices, representing the developed markets outside of North America: Europe, Australia and the Far East.

Russell 1000 Index -- Measures the performance of the 1,000 largest companies in the Russell 3000 Index.

Russell 2500 Index -- Measures the performance of the small to mid-cap segment which includes approximately 2500 of the smallest companies in the Russell 3000 Index.