Author Topic: Personal Capital "Life Annuity Index"  (Read 6752 times)

SnackDog

  • Handlebar Stache
  • *****
  • Posts: 1284
  • Location: Latin America
Personal Capital "Life Annuity Index"
« on: March 20, 2014, 10:39:29 AM »
PC just added this feature to their web site.   They using some combination of longevity, investments and net worth to estimate a monthly annuity one could start spending now for the rest of one's life.  With the guidance that if is it is a lot less than you are currently spending, you may not be ready to retire.  Hmmmm.

"The Life Annuity Index (LAI) is a personalized index that reveals your current financial reality, without relying on any assumptions or projections. Given your net worth and current market prices, the LAI measures the monthly income you can receive every month for the rest of your life starting today. This monthly payment will adjust with inflation to preserve your purchasing power and will not be affected by market fluctuations."

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27690
  • Age: -999
  • Location: Traveling the World
Re: Personal Capital "Life Annuity Index"
« Reply #1 on: March 20, 2014, 10:48:11 AM »
"The Life Annuity Index (LAI) is a personalized index that reveals your current financial reality, without relying on any assumptions or projections. Given your net worth and current market prices, the LAI measures the monthly income you can receive every month for the rest of your life starting today. This monthly payment will adjust with inflation to preserve your purchasing power and will not be affected by market fluctuations."

(Emphasis added.)

That's quite a trick.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mlipps

  • Handlebar Stache
  • *****
  • Posts: 1077
Re: Personal Capital "Life Annuity Index"
« Reply #2 on: March 20, 2014, 10:59:34 AM »
There's a thread about this on Bogleheads & it sounds like the withdrawal % they're estimating is really all over the place. It hasn't shown up for me yet, but I wonder if that's because I don't have any taxable investments & I'm only 24.

Nords

  • Magnum Stache
  • ******
  • Posts: 3174
  • Age: 58
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Personal Capital "Life Annuity Index"
« Reply #3 on: March 20, 2014, 04:05:52 PM »
PC just added this feature to their web site.   They using some combination of longevity, investments and net worth to estimate a monthly annuity one could start spending now for the rest of one's life.  With the guidance that if is it is a lot less than you are currently spending, you may not be ready to retire.  Hmmmm.
"The Life Annuity Index (LAI) is a personalized index that reveals your current financial reality, without relying on any assumptions or projections. Given your net worth and current market prices, the LAI measures the monthly income you can receive every month for the rest of your life starting today. This monthly payment will adjust with inflation to preserve your purchasing power and will not be affected by market fluctuations."
IIRC FinancialEngines.com assumes that at retirement you annuitize your investment portfolio into a specific (fixed) asset allocation and use a withdrawal rate tied to the longevity you've specified.

Or maybe they're just using the Berkshire & Vanguard websites to generate quotes on inflation-adjusted annuities.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4949
Re: Personal Capital "Life Annuity Index"
« Reply #4 on: March 20, 2014, 05:29:03 PM »
Hmmmm...I got an e-mail about this, only it was called the "Financial Sustainability Index."  The e-mail said the purpose was to determine if current spending levels are sustainable.  It appeared when I opened up Personal Capital this morning.  I figured it was prefatory to the annuity sales pitch, but I think those of us that are older, hold other assets, and have been retired for years are getting a different approach.

wileyish

  • 5 O'Clock Shadow
  • *
  • Posts: 54
Re: Personal Capital "Life Annuity Index"
« Reply #5 on: March 20, 2014, 09:41:22 PM »
Hey Rebel Spy, thanks for bumping me over here. I’m still new to this forum and feeling my way around. I did do a search for FSI before I posted, promise. :)

The new PC feature showed up as FSI for me, and seemed to be calculated on rainbows and leprechauns. That is better than the attention grabbing “You need 5 MILLION to retire” headlines, but I’m looking for something in between the two extremes.

I was curious if others felt that the PC numbers underestimated your own calculations? By PC standards I only need my net worth to produce another $100/month to maintain current expenses. It seems way too optimistic.

Maybe the site calculated that I am going to croak young and should go skydiving now.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27690
  • Age: -999
  • Location: Traveling the World
Re: Personal Capital "Life Annuity Index"
« Reply #6 on: March 21, 2014, 07:09:14 AM »
Hey Rebel Spy, thanks for bumping me over here. I’m still new to this forum and feeling my way around. I did do a search for FSI before I posted, promise. :)

No worries!  I just try to keep things tidy.  :)

I was curious if others felt that the PC numbers underestimated your own calculations? By PC standards I only need my net worth to produce another $100/month to maintain current expenses. It seems way too optimistic.

http://www.bogleheads.org/forum/viewtopic.php?f=2&t=135476

In this Bogleheads thread one person postulated that [regarding the SWR they were using]:
Quote
I was about 2% @20, 2.5% at 40, 4% at 60, and 8% at 80.

Another said theirs was at about 6% in their mid-50s.

So it seems it's a little all over the board right now.

Anyone want to post what age they are and what SWR it's giving you?

(I don't use Personal Capital, or I'd post my data.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

TreeTired

  • Bristles
  • ***
  • Posts: 449
  • Age: 134
  • Location: North Carolina
  • I think we can make it
Re: Personal Capital "Life Annuity Index"
« Reply #7 on: March 21, 2014, 07:20:44 AM »
Quote
Given your net worth and current market prices, the LAI measures the monthly income you can receive every month for the rest of your life starting today. This monthly payment will adjust with inflation to preserve your purchasing power and will not be affected by market fluctuations."

Isn't that the definition of an annuity, with an inflation adjustment?   If you use your current net worth X to purchase an annuity Y,  you will receive Z dollars (inflation adjusted) for the rest of your life. (Yawn)  No assumptions or projections because you can get a firm quote on an annuity right now.  Nothing new, just a pitch to sell you an annuity. 

Am I way off?  I didn't read any more than the posts in this thread.

SnackDog

  • Handlebar Stache
  • *****
  • Posts: 1284
  • Location: Latin America
Re: Personal Capital "Life Annuity Index"
« Reply #8 on: March 21, 2014, 08:35:54 AM »
I can't tell what SWR it is using because I can not work out if is using net worth or savings as the principle.  I am confident it is using a longevity assumption (something which does not exist in the SWR world) which is why it shows larger withdrawals possible for older people.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27690
  • Age: -999
  • Location: Traveling the World
Re: Personal Capital "Life Annuity Index"
« Reply #9 on: March 21, 2014, 08:40:10 AM »
Quote
Given your net worth and current market prices, the LAI measures the monthly income you can receive every month for the rest of your life starting today. This monthly payment will adjust with inflation to preserve your purchasing power and will not be affected by market fluctuations."

Isn't that the definition of an annuity, with an inflation adjustment?   If you use your current net worth X to purchase an annuity Y,  you will receive Z dollars (inflation adjusted) for the rest of your life. (Yawn)  No assumptions or projections because you can get a firm quote on an annuity right now.  Nothing new, just a pitch to sell you an annuity. 

Am I way off?  I didn't read any more than the posts in this thread.

It'd be interesting if they're using actual annuity quotes (and trying to sell them).

I'm tempted to sign up for Personal Capital just to play around with this, but that sounds like a lot of effort, so I'm hoping others will play and report back their results.

I can't tell what SWR it is using because I can not work out if is using net worth or savings as the principle.  I am confident it is using a longevity assumption (something which does not exist in the SWR world) which is why it shows larger withdrawals possible for older people.

Right, but you can tweak your age to try and figure out the SWR levels at various ages, right?  I'm assuming that's what that Bogleheads poster did.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SnackDog

  • Handlebar Stache
  • *****
  • Posts: 1284
  • Location: Latin America
Re: Personal Capital "Life Annuity Index"
« Reply #10 on: March 21, 2014, 08:59:42 AM »
If I assume it is currently using about 5.5%, it drops to 4.1% at 20 years younger and leaps up to 9.8% if I add 20 years.  These are all high rates unless it is assuming I liquidate some real estate.

TLV

  • Bristles
  • ***
  • Posts: 492
  • Age: 31
  • Location: Bellevue, WA
Re: Personal Capital "Life Annuity Index"
« Reply #11 on: March 21, 2014, 01:08:24 PM »
They must be rolling it out slowly, because I don't see it anywhere when I log in.

wileyish

  • 5 O'Clock Shadow
  • *
  • Posts: 54
Re: Personal Capital "Life Annuity Index"
« Reply #12 on: March 21, 2014, 09:23:07 PM »
Aha, try this.

Click on:   What is your Financial Sustainability Index (FSI)
Then click on: Make your Financial Sustainability Index more accurate

Click “Edit”, then you can change some of the assumptions. My FSI dropped down to something close to the ballpark of my estimations after this exercise (you can distinguish between property and investable assets here). Still higher than my math though, but I think the figure can be used to help calculate your long term goals.

Current Age: 39
Age listed for PC retirement: 46
SWR projected by PC FSI: 3.81

They haven’t tried to sell me anything, mainly because I dodged their calls. They tried to reach me for about a week or two after I created the account, then they went away.

Areblespy, you should check out the site. Many of us would love to hear your feedback. For me, the net worth so prominently displayed has been a HUGE motivator. I just keep striving to squeak over the next NW line. Surpassed the 500K line this month and had an “ooooooh!” moment.

ichangedmyname

  • Bristles
  • ***
  • Posts: 420
    • Luxe Frugality
Re: Personal Capital "Life Annuity Index"
« Reply #13 on: March 21, 2014, 09:57:25 PM »
I can't seem to find it.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27690
  • Age: -999
  • Location: Traveling the World
Re: Personal Capital "Life Annuity Index"
« Reply #14 on: March 22, 2014, 07:05:29 AM »
Aha, try this.

Click on:   What is your Financial Sustainability Index (FSI)
Then click on: Make your Financial Sustainability Index more accurate

Click “Edit”, then you can change some of the assumptions. My FSI dropped down to something close to the ballpark of my estimations after this exercise (you can distinguish between property and investable assets here). Still higher than my math though, but I think the figure can be used to help calculate your long term goals.

Current Age: 39
Age listed for PC retirement: 46
SWR projected by PC FSI: 3.81

They haven’t tried to sell me anything, mainly because I dodged their calls. They tried to reach me for about a week or two after I created the account, then they went away.

Nice find!  Thanks for the update.  Would someone be willing to post a screenshot of the options page (or type them all out) with personal information blanked if you like? I'm curious what you can tweak.

Areblespy, you should check out the site. Many of us would love to hear your feedback. For me, the net worth so prominently displayed has been a HUGE motivator. I just keep striving to squeak over the next NW line. Surpassed the 500K line this month and had an “ooooooh!” moment.

My asset situation is too complicated to track with an automated program, so I track it on my own with excel (and use networthiq to put in my numbers just for fun).

I use mint for tracking spending, but ignore it's net worth calculation, cause it's just flat out wrong.

Congrats on becoming a semi-millionaire!  :D
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4949
Re: Personal Capital "Life Annuity Index"
« Reply #15 on: March 22, 2014, 07:20:14 AM »
If you like the Yodlee programs, PC seems to be the best of the lot.  Fidelity Full View and B of A My Portfolio are not well maintained.  The B of A version makes it impossible to change property values.  PC has the best way of dealing with problems, like banks they have not linked to and folks that don't want to play, like Treasury Direct.  However, I'm not sure how long they will be around.  Folks that are attracted to index investing aren't going to pay a heavy account management fee.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27690
  • Age: -999
  • Location: Traveling the World
Re: Personal Capital "Life Annuity Index"
« Reply #16 on: March 22, 2014, 07:26:32 AM »
However, I'm not sure how long they will be around.  Folks that are attracted to index investing aren't going to pay a heavy account management fee.

If they get enough publicity though they can attract the millions who haven't caught on to indexing, don't know about investing, and don't want to research investing.  I'd assume that's their strategy: get anyone onboard they can now, even ones who won't pay account management fees, so they can get large enough to be used by those who will.

The early adopters won't be those people: early adopters are probably financially savvy.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

wileyish

  • 5 O'Clock Shadow
  • *
  • Posts: 54
Re: Personal Capital "Life Annuity Index"
« Reply #17 on: March 22, 2014, 09:33:41 AM »
Here are the options.

Investment Profile


What is your first name?

What is your state of residence?

What year were you born?

At what age do you expect to retire (or what age did you retire)?

Which best describes your risk tolerance?

What is your annual income (before taxes)?
-
About how much do you save each year?

What are your investable assets worth?

What is your total net worth?

On average, how much do you intend to annually withdraw from your investment accounts for retirement?

How important is the amount you leave to charity or your heirs?

At what age do you expect to start receiving social security?

How much annual Social Security do you receive, or how much do you expect to receive?

In retirement, how much annual income do you expect other than Social Security and your investments (pensions, rental income, etc.)?

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: Personal Capital "Life Annuity Index"
« Reply #18 on: March 22, 2014, 07:57:24 PM »
Yeah I notice that doubling my house price really changed my numbers. The one that you probably want to be looking at is the one that tells you how much more money you get by saving 100 bucks.

Their fees are really high compared to betterment and wealthfront (among others). There is a role for companies like this (i.e. most people don't have the desire to be investment experts) but paying ~4x as much for a similar service is going to be stretch. Of course maybe their AA is better and will earn you an extra 2%. I am a bit suspect of that though.


If I assume it is currently using about 5.5%, it drops to 4.1% at 20 years younger and leaps up to 9.8% if I add 20 years.  These are all high rates unless it is assuming I liquidate some real estate.

BigRed

  • Stubble
  • **
  • Posts: 200
  • Age: 43
  • Location: NJ
Re: Personal Capital "Life Annuity Index"
« Reply #19 on: April 01, 2014, 12:29:42 PM »
They seem to have beefed up the explanation for this, it appears to be the price of an inflation adjusted annuity that starts at your retirement date but purchased now.  I appear to need about $9.16 to purchase $1/yr of inflation adjusted annuity starting at 60, ~20 years from now. 

Using instead a 7% nominal return, and a 4% SWR, that same $9.16 would yield $1.41/yr of income.

I suppose that's possibly worth knowing, though I don't really want that information above my current net worth on the site.