Methodology and Assumption Text


The following information provides additional detail about how we prepared your forecasts.


IMPORTANT: Any forecasts, projected outcomes or other information generated regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. In addition, results may vary each time a forecast is generated for you.

Also, these estimates assume you leave FRS-covered employment at Normal retirement age. Any DROP benefit is shown as a lifetime series of payments, not a single lump sum. These estimates assume a certain future salary growth rate. The assumed salary growth rate is the default for your cohort (i.e. other FRS members similar to you), unless you changed it in the CHOICE SERVICE or the ADVISOR SERVICE.

Investment Analysis Methods: Any forecasts presented are not a guarantee of future results, but only reasonable estimates. Forecasts are based upon information about you and your current accounts and investments that we know about, estimated annual savings amount and forward-looking models of the economy and securities markets that utilize data such as historical returns, historical correlations, expected growth rates, and calculated risk premiums. Since past performance is not an accurate predictor of the future and reliance on historical and current data necessarily involves inherent limitations, you must understand that the estimates are only a tool to be used in evaluating your retirement portfolio. Forecast amounts are in today's dollars, which means that they have been adjusted for inflation except as otherwise indicated.

Forecasts are created by generating thousands of hypothetical future economic scenarios to evaluate how an investment portfolio might perform under a variety of circumstances, including changing interest rates, inflation, and market conditions.

About Your Information:

Financial Engines relies on information provided by you or your plan provider to create your forecast. If you have provided spouse or partner information, we rely on that information as well. For detailed information about the accounts and investments included in your analysis and the methodology used, visit the Advisor service to view your retirement income drawer and "Your Profile." You should review information in "Your Profile" periodically to ensure that the information is accurate. To update any information provided by you, go to the "Your Profile" tab.

Financial Engines makes no representations as to the accuracy of the data. Financial Engines is not responsible for communicating any of your changes to your personal information to either your plan sponsor or provider.

If you own investments that you did not tell us about or that we were unable to model, Financial Engines does not analyze those investments and they are not included in the analysis. If you are relying on a generic fund to represent an asset that we are unable to model (i.e., private stocks or funds, ETFs, closed-end funds, etc.), that fund is included in our analysis but is not a perfect substitute for your actual investment.

While we will attempt to update security prices daily and monitor your investments for the various corporate actions that may occur (i.e., splits or mergers), it is ultimately your responsibility to inform us of any changes to your investments.

About Your Retirement Forecasts:

To show your forecasts, we take the 5th, 50th, and 95th percentiles of thousands of hypothetical future economic scenarios. There is a 50% chance that you will have at least the "Median - average market performance" forecast. There is a 5 % chance that you will have the "Downside - poor market performance" forecast or less, and a 5% chance that you will have the "Upside - excellent market performance" forecast or more. Charts or graphs may not be drawn to scale.

Unless otherwise specified, the forecasts assume your current retirement decisions.

Retirement Income Goal and Likelihood of Reaching Goal:

Your estimated retirement income goal was specified by you after reviewing a default goal, assumed to be 70% of your estimated income at your retirement age. Your retirement income goal is expressed in today's dollars.

We estimate your income at retirement age by growing your current salary by 5% annually (or a different percent as specified by you) and adjusting for inflation. To adjust the income growth assumption, visit the Advisor service to edit your job under the "Your Profile" tab. Expected inflation averages about 3.5% per year, so we subtract 3.5% from your estimated annual income growth. For example, if your estimated annual income growth is 5%, your estimated income increase would be 1.5% per year when adjusted for inflation.

We do not update your retirement income goal. Your retirement income goal may need to be updated if any of the following changes for you or your spouse/partner: salary, salary growth rate, or years until retirement. Your actual desired retirement income may differ depending on your circumstances, such as medical or housing expenses. You should review this goal regularly and change as needed. To change your retirement income goal, visit the Advisor service and go to the "Your Information" page under the "Your Profile" tab.

The "Retirement Forecast" shows your likelihood of reaching the indicated retirement income goal. This likelihood is an estimate based on running thousands of hypothetical future economic scenarios and is not a guarantee.

Estimated Retirement Income:

The income you have available in your retirement will be based on income from your investments, Social Security, Railroad Retirement, and any pension or other forms of retirement income you may have told us about. To see the detailed assumptions we used, please visit the Advisor service and refer to the "sources of retirement income" table in the retirement income drawer for your retirement income forecast on the home page.

To estimate your retirement income, we use a process called annuitization and adjust for inflation to translate estimated portfolio values at retirement age into annual pre-tax estimated retirement incomes in today's dollars.

If you have an account with an after-tax basis (e.g., 401(k) account to which you make after-tax contributions) we take that basis into consideration when creating the pre-tax value of your annual retirement income. We start with your current basis as given to us by you or your plan provider and then add your projected future after-tax contributions. We then gross up that value to convert to a pre-tax dollar value to express your retirement income forecast in pre-tax dollars. We do the same for any taxable accounts and any basis attributable to Roth contributions and earnings thereon.

If your retirement age, your contribution rate or your employer contribution changes, your forecasts may differ.

If you have provided spouse/partner information, your retirement income estimate considers both of you. The estimate assumes that the surviving household member receives 50% of the annual income amount.

Forecasting Risk Over Time: If you hold a fund whose investment objective includes reducing risk over time (typically referred to as "target date funds"), we model its declining risk according to its stated timeframe. For other investments, we assume you maintain a constant investment mix through time; it may be appropriate for you to reduce your investment risk as you approach retirement, but the service cannot predict your future decisions and therefore assumes a constant mix of those investments. In general, if you hold any investments that cannot be reallocated by you, we model those investments on a "buy and hold" basis, rather than assuming that you will adjust their proportions over time.

Current Savings:
We use your estimated annual savings (sometimes referred to as your "total retirement savings each year") in our analysis.

To estimate current contributions made by you or your employer to your accounts, we rely on contributions made by you that we know about, employer contribution rules set up for you or told to us by you and, for contributions tied to your salary, your salary that we know about.

For contributions to accounts set up for you, we apply current plan limits and rules that we know about and, when applicable, current IRS limits to each account individually.

New Savings: To estimate new contributions made by you or your employer to your accounts, we rely on the decisions you've made about how much you want to save to each of your accounts. We take into consideration the same limits and rules described above for your "current savings".

Contributions are Assumed to Continue: When we estimate your retirement income values and portfolio values, we generally assume contributions (if any) continue until retirement. Sometimes a plan rule may call for employer contributions to cease or change on a specified future date. If we know about that plan rule, we take that into consideration when estimating your retirement income values and portfolio values. If you have specified contributions to an account that are dependent upon a salary from a job with a future start date, your forecasts assume that those contributions start on the specified date. Any change or elimination of an employer contribution may affect your forecast estimate.

Contributions to an Account with a $0 Balance: When we estimate your retirement income values and portfolio values, contributions, if any, to an account with a $0 balance are not included.

Other Retirement Income Sources: Other retirement income sources such as pension, Social Security, or Railroad Retirement benefits are estimates and not guaranteed.

To create a consistent retirement income in today's dollars, any benefit specified in future dollars is converted to today's dollars and any benefit specified to start at an age other than your planned retirement age is "smoothed" over the retirement years. That is, benefits specified to start after your stated retirement age are reduced in the retirement income estimate to account for the retirement years for which the benefit is not yet in effect. Alternatively, benefits specified to start before your retirement are increased in the annual income estimate to reflect the opportunity for additional savings in the pre-retirement years. If available, you may choose to include in your forecast a pension estimate provided to us by your plan provider. In that case, sometimes an estimate for your retirement age is not available and instead an estimate for an earlier retirement age is included in your forecast. If so, we assume that benefit starts at the later of (1) the start age specified for that estimate, or (2) your retirement age.

To see or to change the assumptions we use about your other retirement income sources, visit the Advisor service and open the retirement income drawer for your retirement income forecast on the home page. For example, if your other retirement income sources include a Social Security benefit estimate that was estimated by us, that estimate assumes you work the required number of years to receive benefits.