How the world’s best financial plans are made

When you come to Planswell, you answer several questions and then see your plan. What you don’t see are the millions of calculations we make in the background to optimize your investments, insurance and mortgages for your goals.

These calculations are based on two types of variables:

  1. Facts that we know, such as your age and income.
  2. Estimates that we must make, such as how much the cost of living will rise in the future and what the tax rates will be when you retire.

Until recently, financial planners would take a mix of facts and estimates and build a plan for the rest of your life. The problem with this approach is that the facts will change and at least some of the estimates will turn out to be wrong. The difference with Planswell is that we enable you to quickly update your plan whenever you want. We recommend twice a year. These small but regular adjustments greatly improve the chance of reaching your goals.

No adjustments
Regular adjustments

This document will give you insight into the facts and estimates that we use to create your financial plan. If you have any questions – or even ideas to make your financial plan better – we would love to hear from you.

The basics

Every plan is unique but there are certain basic assumptions that apply to just about everyone. Here the major ones.

Variable Reference / rationale
Annual real rate of return on investment Conservative: 4.5% Conservative Growth: 5% Moderate Growth: 5.25% Growth: 5.75% Maximum Growth: 6.25% Average Total Historical Returns based on various Asset Allocation Models (stocks and bonds in blended allocations). Plans are adjusted for inflation to show all amounts in today's dollars by default.
Annual inflation rate 2.75% inflation The Federal Reserve targets 2% inflation over the long-run but the measure we use, the CPI (consumer price index) may not be accurately capturing inflation rates (it may be too low).
Salary growth rate Equal to inflation In practice this is what we assume.
Savings rate Equal to inflation Similar sentiment - increase savings as your wage increases.
Income tax brackets Indexed to inflation Industry Standard
Living expenses Indexed to inflation We expect that your living expenses will increase with the cost of living.
Life expectancy Dynamic plan end date calculated based on current age, smoker status and gender (US Average life expectancy 76.1 - Male, 81.1 Female) A majority of financial planners anticipate 95 years old in Financial Planning Assumptions.
Emergency fund 6 months of net income. If there is 6 months of net income available in your standard brokerage account, the engine will assume your emergency fund is built. Industry standard
US Social Security contribution and benefit amounts 2024 Social Security contribution limit is $10,453 (and employer can contribute equal amount). Maximum contribution is based on the taxable wage limit of $160,200 per SSA (Social Security Administration)
Social Security timing and eligibility As early as 62, but benefit grows by 8% until you reach the age 70, so it could be more beneficial to wait to receive benefits if family has history of longevity. In general it is better to wait until age 70 so that you can receive your maximum benefit. Social Security Administration (SSA), Industry Standard
Payroll deductions Social Security up to wage limit of $168,600 and Medicare deducted (no limit on how much can be taken out for Medicare). All other deductions based on current rates. We assume that you are an employee with standard payroll deductions based on current rates.
Home value appreciation We assume 0.25% per year (disregarding inflation). Adjusted for inflation, 3% (assuming 2.75% inflation). 4.89% is the S&P Down jones Index Shiller U.S. National Home Price Index long term average annualized price return.
Home equity Reverse Mortgage, Home Equity Loan, and Home sales are the primary options. We assume that you can tap into your home equity in retirement, and that the retiree has some means by which to pay minimum payments on Home Equity Loans.
Rental cost in retirement If the sale of the primary residence is triggered in retirement, annual rent is assumed to be 4% of the value of the property. Conservative estimate
Home sale costs Maximum 5% commissions and 2-3% in additional expenses You may have a home that will be sold as part of your estate value calculation. Assumption of 5% realtor fees for selling and additional 3% for legal and other misc expenses (movers, legal, taxes, etc.).

Investing for retirement

Your investor profile sets your overall limits for risk and return and any investor should complete a full investor KYC before proceeding with any investment.  In addition, your plan is designed to minimize your overall tax bill. One of the ways we can do that is by determining the best timing and amount when you invest in an Employer Sponsored 401(k) account, a Traditional Individual Retirement Account (IRA), a tax-free Individual Retirement Account (Roth IRA), or taxable brokerage account. We make these determinations based on your current tax rate and estimated future tax rate.

Variable Reference / rationale
401(k) Contribution Limit $23,000 or $30,500k annually, catch up contribution of additional $7,500 if age 50+ / Pre-tax money Internal Revenue Service
401(k) Employer Match Average employer match 4.3%, median 4% (most common is 50% match up to first 6%) we assume none on plan creation but can be added by an advisor Internal Revenue Service
401(k) Contribution Limit growth rate indexed to inflation Internal Revenue Service/ CPI
IRA contribution limit $7,000 or $8,000 if age 50+ / Pre-tax money (although non-deductible contributions are allowed) Internal Revenue Service
IRA contribution limit growth rate Indexed to inflation Internal Revenue Service/ CPI
IRA tax refunds We assume that your IRA tax will be reinvested into your plan. Designed to optimize the growth of the assets in your financial plan.
Roth IRA contribution limit $7,000 or $8,000 if age 50+ / There are income phase out limits on who can contribute to these directly / Post-tax money Internal Revenue Service
Roth IRA contribution limit growth rate Indexed to inflation Internal Revenue Service/ CPI
Order of withdrawal in retirement RMD First, then tax-deferred accounts to meet the spending goals, then tax-free retirement accounts, then taxable brokerage accounts Designed for tax minimization without consideration for Roth Conversions.
Target retirement income Current net income minus debt payments, minus insurance payments, minus annual savings. The objective of the target retirement income is to maintain your current lifestyle.

Investing for a child’s education

Whether you’re investing for school or retirement, the main principles remain the same, invest in an appropriate portfolio, suitable to your risk tolerance.

Variable Reference / rationale
Post-secondary education timing Age 18 Industry standard
Annual 529 College Savings Plan contribution Contribution limits set by states $235k - $529k (no annual limits but aggregate limit) / Post-tax money (federal - may get state tax credit) Optional Contributions at discretionary amounts throughout the plan. Unlikely to contribute to the maximum limit in any given year.
Maximum lifetime 529 College Savings Plan contribution Contribution limits set by states $235k - $529k (no annual limit but aggregate limit) / Post-tax money (federal - may get state tax credit) Optional Contributions at discretionary amounts throughout the plan. Unlikely to contribute to the maximum limit in any given year.

Protecting your income

The role of insurance is to replace the income that would be lost if you or someone in your family were no longer able to work. The goal is to make sure that, even if there is a negative health event, you and your family will not suffer a lower standard of living now or in retirement. If you are over age 60, we will not automatically recommend insurance as part of your plan, but will discuss your needs with you on an individual basis. Your plan may include two types of insurance: Term Life Insurance pays a tax-free lump sum if the insured person passes away. We design your plan with the expectation that this amount will be invested according to the risk tolerance of the surviving spouse in order to produce ongoing income. Disability Insurance pays a monthly tax-free benefit if you become temporarily or permanently disabled and cannot work at your current occupation. Studies show that an accident or illness will cause about one person in three to be disabled for 90 days or more in their lifetime.

Variable Reference / rationale
Life insurance income replacement 100% of after tax income - subsistance (10%-20%) We recommend enough coverage so that you’d be able to maintain your current lifestyle if your spouse were to pass away. We expect that the survivor will continue to work and earn the same income they do today. The subsistance represents the day to day living expenses of your spouse and the percentage range is based on income.
Life insurance debt coverage Coverage amount designed to pay off all outstanding debts Industry standard
Disability insurance 65% of pre-tax income replacement until age 65 Industry standard

Managing your debt

At Planswell, our goal is to prevent you from paying unnecessary interest costs. That’s why we’ll recommend ways to minimize your debt costs while you invest, or even before you can start investing. Here are the three main debt solutions that may be included in your plan: Refinance your debt. If you have credit cards, loans, lines of credit, or other debts and also have home equity of 20% or more, we may advise you to pay off your debts with a Home Equity Loan or Home Equity Line of credit in order to free up cash flow for investing and insurance. Pay down your debt and invest at the same time. If you have debt with an interest rate lower than your expected investment returns, we may advise you to work on paying it off while also adding to your investments. Pay down your debt before investing. If you have high-interest debts that cannot be refinanced, we will advise you to work on paying them off, starting with the highest interest rate first. Once this is done, we’ll get your investments started.

Variable Reference / rationale
Credit card interest rate 19.99% (APR) assessed daily, compounded monthly Rate is reflected as average credit card interest rate for new offers, applicable to consumers with average credit scores.
Car loan interest rate 6% per year compounded monthly Based on loan rates for Good Credit scores (700 and above)
Other Debt 9% per year compounded monthly Based on Consumer Credit score and risk profile
Student Loan debt interest rate 6% per year compounded monthly Based on Average of Fixed, Variable, Refinanced, Private and Federal student loan rates for both graduates and undergraduates.
Mortgage interest rate 6% (APR) assessed daily, compounded monthly Based on the current average 30-year fixed mortgage
Maximum debt to income ratio 44% Industry Standard - May range between 40-50%
Maximum home loan to value (LTV) 80% Industry Standard
Amortization period Up to 30 years Industry Standard

Reaching your goals

The world’s best financial plan is the one that actually gets you to your goals. That’s why we’ll ask you to log in to your Planswell dashboard every six months and spend a few minutes updating your plan. This will help make sure that your plan reflects the most up-to-date facts and estimates ,and that you have the best possible picture of where you’re heading financially.

Variable Reference / rationale
Plan update interval Every six months This is the key to reaching your goals!
This document is regularly revised in response to many factors – from changing market conditions to tax law updates and the real-life situations of clients like you.  Please note, the assumptions on your plan might change after your plan is tailored by an expert to better suit your needs.   If you have any questions or would like to suggest ways to improve your plan, please let us know. [email protected]