Lifetime Income is the sum total of all income (adjusted for inflation) during the client's lifetime.
There are two aspects of this metric;
- the required lifetime income: this is the total income required by the client
- the actual lifetime income: is the total withdrawal from the portfolio for any given scenario.
Timeline compares this required lifetime income to the actual total withdrawal from the portfolio in a given percentile scenario.
For example, if a 65 year old requires an income of £40,000 a year for 30 years until age 94, then the Lifetime Income required is £1.2m (i.e £40,000 X 30). Suppose, the withdrawal strategy only supports a total of £1m in the bottom 10th percent scenario during the stated retirement period. The result is a shortfall of £100k in Lifetime Income.
Timeline expresses the actual and required lifetime income in real terms.
There are a number of reasons why the actual lifetime income may be less or more than the required income, for any given scenario.
- If the portfolio runs out of money in a given scenario before the end of the planning period.
- If a withdrawal strategy increase/decreases the actual withdrawal depending on the portfolio performance. For instance, the Guardrails strategy reduces the income during periods of poor performance (and vice-versa). Accordingly, the actual lifetime income may be lowered than the required income, even if the portfolio doesn't run out of money.
- If withdrawals are not adjusted for full inflation.