How are rates of return calculated and applied in the Cash Flow Planner?

The first component of the calculation is the discount rate for each goal priority level,  which you entered in Economic Assumptions when setting up the household’s account; in the Cash Flow Planner it is used for to calculate rate of return.

The second component is the weight of the goal level to the total goals (i.e., Necessary goals are x% of total goals.). Third, we look at the percentage of each goal level that can be funded by the household; this is called the Funding Ratio.  For each priority goal level, we multiply these values—the discount rate, the weight of the goals, and the Funding Ratio. Finally, we total the rates for each goal level to determine the final rate of return.

For brokerage accounts, the Cash Flow Planner uses the rate of return for retirement accounts and factors in taxes.

For bank accounts, the Cash Flow Planner uses a fixed rate of return that is reviewed—and, if necessary, revised—periodically.