Lesson 3.2 - Working with Plans

Since we have already covered how to create goals and accounts in the Filling out the Profile article, we’ll focus on how to put everything together.

Before we begin, there are a couple of things we should point out:

• You can have as many plans for a client as you would like
• You can have items such as Goals, Accounts, and Incomes in as many plans as you would like (just be sure not to double count anything)
• Don’t include the payroll income in the plan since you define contributions  to the plan within the accounts.

Let’s get started. To create a plan, head over to the Plans section and click Create New Plan.  

Now we just need to name the plan and we can get to work. In our example, we are going to create an Education Plan so we will name our plan "Education Plan". Once you are done naming the plan, click Next.

The next thing we’ll do is add the plan goals. 

In this case, we already have a couple education goals entered, so we simply need to select the one we want to include in the plan here.

In this case we’ll select Joe’s Education goal. Our plan, will only have the one goal, but you can include as many goals as you would like in a plan.

The next thing we will need to do is add an Account. If the account is already there, we’ll just add our 529 account.

If there are no accounts, from the Add New Account section, click Account and add the account details.  

Next, we will add the asset allocation to the plan.  As you’ll notice the plan will include the default model, you selected in your firm settings. Our default model is a 60/40 portfolio. We’ll leave that in place until the child goes to college.  

 

Once the children reach college age, we’ll move to a more conservative asset mix, a 20/80 portfolio. In order to do that we’ll click on the Add New Allocation button, and name the allocation period. To name the allocation period, click the Edit button.

Now we can go in and put in the allocation we want.  You’ll notice that the program will evenly divide the time period when we create a new allocation period, so we’ll need to adjust the start and end dates to reflect our plan timeline.

We’ll change the Start Age and End Age to the desired age, and when we save everything the earlier Allocation Period will automatically adjust its End Date to avoid any overlap. Now we can go in and select our 20/80 Allocation Model and hit Next in the bottom right corner. 

 

If we were going to add in any Income to this plan, we would do it through the Income Tab and the same goes for Taxes. Since we’re dealing with a 529 plan we don’t need to worry about taxes in this case. However, there are a couple of things to point out with how we handle taxes.

• You can choose to use an average income taxes rate or marginal tax rate to calculate taxes for the plan.
• You can create as many Income Tax Periods as you would like, so you can model potential income tax changes throughout your client’s accumulation and retirement phases.
• We break out Capital Gains out separately, and just like Income Taxes you can create as many Capital Gains Periods as you would like.

At this point we just need to hit the big Calculate button in the center of the screen and we’ll find out if the plan works or not.

 

In this case we had a 85% Probability of Success. To see all of the results click on the View Output to the right of the Re-Calculate button. This will give you a report that you can Download to PDF and print out or email to your clients.

 
In the next lesson, we’ll dive in to unwrapping exactly what’s going on under the hood, and how to interpret all of the different numbers. For now though, what that 90% means is that of the 1,000 simulations the program just ran about 900 of them were able to meet all of the goals. Approximately 100 of the simulations were not able to meet the goals.

And that’s the basics of building plans in inStream. Most of your plans are probably going to be a little more involved, but everything operates on the same principles that we have looked at here.

Note:  When creating a plan, the wizard also allows you to create a scenario goals, accounts and incomes.  These are used when you want to create a scenarios that are used for this plan only, but don't necessarily want these items to appear in the client's profile.  Scenario goals, accounts and incomes, show you how changing different variables impact your plan.