inStream’s Distribution Management System is designed to help advisors model more realistic and dynamic distribution scenarios for Safe Savings Rate plans. Most advisors approach their clients distributions from a more fluid perspective than current planning tools allow.
inStream's Distribution Management System provides flexibility around how the client's distributions are handled under different market conditions. Advisors can adjust these rules to respond and adapt to changes in the financial markets and (perhaps more importantly) their client’s reaction to the situation.
Distribution Rules
Within the Distribution Management System there are eight different rules that you can apply within your plans to build an intelligent distribution approach to mimic how your client’s distributions should be handled.
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Inflation Adjustment
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Annual Inflation Cap
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Distribution Floor
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Distribution Ceiling
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Maximum Distribution Percent
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Minimum Distribution Percent
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Portfolio Return Freeze
- Maximum Contribution Amount
Inflation Adjustment
The Inflation Adjustment rule will adjust the plan elements for inflation. When turned on, the Distribution Amount, Distribution Floor, and the Distribution Ceiling will be adjusted to account for the annual inflation rate. The inflation rate and standard deviation for inflation can be adjusted using the Inflation tab in the plan.
Distribution Inflation Cap
The Distribution Inflation Cap puts a limit how much the distribution amount can be adjusted for inflation. For example, if inflation is 15% in a given year, but your Annual Inflation Cap is set to 10%, then the distribution will only go up by10%. It is important to note that the Distribution Floor and Ceiling will be adjusted by the “real” inflation, and will not be limited based on the Distribution Inflation Cap.
Distribution Floor
The Distribution Floor is the minimum acceptable distribution amount for your client. If the distribution falls below this amount, then the program will increase the distribution to the floor level. If the Inflation adjustment rule is turned on, then the Distribution Floor will be adjusted by inflation. For example, if the minimum acceptable distribution is $100,000 a year and inflation is 15%, inStream will adjust the distribution to at least $115,000 for that year.
Distribution Ceiling
The Distribution Ceiling is the most that your client’s would ever want to be able to spend in a year. If the distribution ever goes above this amount, then the program will decrease the distribution to this level. If the Inflation adjustment rule is turned on, then the Distribution Ceiling will be adjusted by inflation. For example, if your maximum distribution is $100,000 a year and inflation is 15%, inStream will adjust the distribution to a maximum of $115,000 for that year.
Maximum Distribution Percent
The Maximum Distribution Percent is a soft ceiling, and is entered as the maximum allowed distribution percentage of the total portfolio. If the distribution amount rises to a level greater than the Maximum Distribution percentage, then the distribution amount will be reduced by the Distribution Change percentage. When turned on, this rule allows distributions to reach a maximum, but rather than enforcing a hard ceiling, the distribution can be reduced more gradually. For example, if the portfolio value is $1,000,000 and the Maximum Distribution % is set at 10%, and the distribution change is 2% then distribution can be reduced by up to $2,000 to meet the maximum distribution amount set.
Minimum Distribution Percent
The Minimum Distribution Percent is a soft floor, and is entered as the minimum allowed distribution percentage of the total portfolio. If the distribution amount decreases to a level less than the Minimum Distribution percentage, then the distribution amount will be raised by the Distribution Change percentage. When turned on, this rule allows distributions to reach a minimum, but rather than strictly enforcing a hard floor, the distribution can be increased more gradually. For example, if the portfolio value is $1,000,000 and the Minimum Distribution % is set at 10% or $40,000 and the distribution change is 2%. The distribution can be increased up to 2,000 to meet the minimum distribution amount set.
Portfolio Return Freeze
The Portfolio Return Freeze will maintain the last year’s distribution (assuming it is within any floor or ceiling that you have set) if last year’s portfolio return is below a set level. For example, if the portfolio return freeze is 3%, if the portfolio’s return last year is less than 3%, the previous year’s distribution will apply.
Maximum Contribution Amount
The Maximum Contribution Amount is the limit that you want to be allocated to an account type, where the account may already have legal contribution limits. For contributions, by default inStream maximizes the tax exempt bucket, then the tax deferred and any remaining funds would be allocated to the taxable bucket. If you want to adjust the amount that is allocated to a qualified account, you can specify this in the maximum contribution field. For example, if the Roth IRA contribution limit is $6,500 but you do not want to allocate more than $3,000 of contributions to your Roth IRA you would enter $3,000 in this field.
These rules only apply to Safe Savings Rate plans in inStream.
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