Back-of-the-envelope plans are made to show a basic view of a client's options, but in keeping so simple, they intentionally don't include a lot of what full plans offer. Here is a list of differences:

  • Income tax doesn't include the income tax-free allowance of both partners

  • Life expectancy doesn't take into account the younger partner's age, but this doesn't matter so much since you can choose when to plan until anyway

  • The balance chart shows only 3 scenarios rather than all scenarios like the full plan's balance chart.

  • There are no advanced spending or inflation strategies

  • There are no account withdrawal order options (these plans use even withdrawal)

  • No adding your own portfolio asset allocation

  • No tax wrappers (all assets in the portfolio are assumed to be tax-free, like an ISA)

  • It is based on historical scenarios only; there is no Monte Carlo option

And here are some other assumptions we make in back-of-the-envelope plans:

  • annual re-balancing used

  • The pessimistic scenario is the 30th percentile scenario, median is the 50th and optimistic is the 70th

  • You use secure income before making withdrawals from your portfolio (like on full plans)

  • The asset allocation of bonds and equities in the 3 investment options (Cautious, Balanced and Aggressive) are based on your country. If you are in the UK, they will be British bonds and equities; if you are in Canada, they will be Canadian ones etc.

Back-of-the-envelope plans are a great place to look at What-If scenarios and have early conversations with a new client, but once you are ready to add all the details and for the full power of Timeline and full accuracy, it's better to set up a full plan.

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