Asset Rates of Return in Moneytree Plan
In Moneytree Plan, we offer a wide range of models for rates of return to capture just about everyone's preferences. Rates of return used in reports can be determined from 3 locations in a scenario:
Default Rates
Asset Level Rates
See Also: Asset Class (assigning a class can auto-fill an asset's rate of return)
Rate Changes
For most assets, only a general rate of return can be entered. In order to capture the intricacies of taxes for brokerages and equities, rates of return on Equity/Other type assets are split into 4 categories:
Interest: Ordinary interest taxed annually as ordinary income. When manually entering Equity rate details, be sure to include non-qualified dividends in this value.
Dividends: Qualified dividends taxed annually at capital gains rates. When manually entering Equity rate details, be sure to include non-qualified dividends with the interest return.
Capital Gains: Annually reported long-term capital gains as a result of periodic rebalancing within the assets.
Appreciation: Growth that goes towards a total balance of untaxed growth. Appreciation is taxed upon withdrawal as long-term capital gains.
It's important to note that even when rates are entered at the individual asset level, Moneytree Plan will still consolidate returns based on their selected Type. Type determines how assets are taxed and drawn down on. When rates are entered for each individual asset, the program calculates the weighted average rate of return for all assets with the same Type.
Default Rates
Default rates used in a specific scenario are reviewed and modified in the Default Rates tab of the Assumptions section. Company level defaults used for new clients and scenarios are entered in the Default Rates section of Settings.
In a scenario, when rates for all assets with of a particular Type are 0%, the program falls back to entries in the Default Rates tab of Assumptions. For Equity/Other type assets the program splits the return evenly across Interest, Dividends, Capital Gains, and Appreciation.
When the box Overwrite at Retirement is used the program will overwrite the rates of return for all asset Types based on the values in the Retirement column. The program will even overwrite manually entered rates of return at the asset level. If you would like more control over when returns change and how they are split for Equity/Other assets, use the Rate Changes section.
Asset Level Rates
For each individual asset users can define a custom rate of return. As soon as a rate of return is entered for a single asset, the program will calculate a weighted average rate of return for all assets with the same Type selected. If one IRA asset has a custom rate entered, and all others were left at 0%. the program will calculate a return as if that one IRA had the entered rate and all other assets had a 0% rate of return.
Because of this, we recommend an all-or-nothing approach to entering rates of return at the asset level. That is, choosing to enter rates of return for each and every asset, or to enter rates for none at all. When the rates of return are left at 0% for all assets the program will simply fallback to the values entered in the Default Rates tab of the Assumptions section.
Asset Classes
Users can elect to have the rate of return auto-populated when they select an Asset Class. To use this behavior, go to the Asset Classes section of Settings and check the box "Auto-Fill these Rates of Return when Entering Assets".
NOTE: For each class you can specify returns for Interest, Dividends, Capital Gains, and Appreciation. For Equity/Other type assets the rates will be auto-filled accordingly. For all other types, the sum of these rates will be taken and used to populate the Rate of Return field.
Rate Changes
Use rate changes to gain more control over if, when, and how rates of returns change for each of the major asset Types. For Equity/Other assets you can even enter precise returns for Interest, Dividends, Capital Gains, and Appreciation.
This section also includes a Cash Payout option that you can mark for all asset Types except retirement plans. When checked, the program will payout the returns annually for the elected Type and produce a cash flow income. Appreciation on Equity/Other assets is not paid out. The program already automatically reinvests returns back into the respective asset pool. Cash payouts can ultimately lead to surpluses that are reinvested into different pools. We recommend using this option sparingly due to this behavior.
TIP: You can also use rate changes to model a period of losses. Create one entry and enter negative rates at the desired age for the losses, then create a second entry and return the rates to normal at the desired age.