Asset Projection Model
Multi-year portfolio projection system tracking growth, contributions, withdrawals, and tax treatment across all account types
How it works
The Asset Projection Model forecasts portfolio values year-by-year through life expectancy, accounting for investment returns, contributions, withdrawals, and tax treatment differences. The system maintains separate projections for each account type (tax-free, tax-deferred, taxable) with proper basis tracking and handles survivor scenarios when one client passes away.
1. Account Classification
Assets are grouped by tax treatment, with each group maintaining separate growth and basis calculations
Total Portfolio = Tax-Free Assets + Tax-Deferred Assets + Taxable Assets
Example: Portfolio: $500k Roth IRA (tax-free) + $800k Traditional IRA (tax-deferred) + $400k Brokerage (taxable) = $1.7M total2. Annual Growth Application
Each account grows by the assumed investment return rate, compounded annually
Year N Value = Year N-1 Value × (1 + Investment Return)
Example: $1M portfolio × (1 + 8%) = $1.08M after one year3. Contribution Processing
Retirement contributions added to appropriate accounts based on type and owner
New Value = Previous Value + Annual Contributions
Example: $1M + $23k (401k contribution) + $7k (IRA contribution) = $1.03M before growth4. Withdrawal Processing
QCDs, RMDs, inherited IRA distributions, and retirement withdrawals processed in order, reducing account balances. Inherited IRA distributions are deducted from the inherited IRA balance each year — they are not reinvested into any other account.
Final Value = Grown Value - RMDs - QCDs - Inherited IRA Distributions - Retirement Withdrawals
Example: $1.08M - $43k (RMD) - $10k (QCD) - $15k (inherited IRA distribution) - $50k (retirement income) = $960k year-end balance; the inherited IRA balance is reduced separately by the $15k distribution5. Basis Tracking
Each account type uses different basis calculation rules for tax treatment
See: Taxable Asset Basis, Tax-Deferred Asset Basis, Tax-Free Asset Basis
Example: Tax-free basis always equals value; Tax-deferred basis stays constant during growth; Taxable basis grows by whatever the gain realization rate recognizes each year6. Survivor Scenario
When first client dies, any remaining assets transfer to the survivor and continue projecting to later life expectancy
Survivor Assets = Own Assets + Transferred Assets from Deceased
Example: Client dies in 2040 → Client assets become $0, Co-Client assets increase by transferred amount
Real-world context
Portfolio Sustainability
The projection model answers the critical question: "Will the portfolio last through retirement?" By forecasting values year-by-year, advisors can identify potential shortfalls decades in advance and adjust strategies (increase savings, delay retirement, adjust withdrawal rates) before it's too late.
Tax Treatment Optimization
Different account types have dramatically different tax implications. Tax-free accounts (Roth) offer tax-free growth and withdrawals. Tax-deferred accounts (Traditional IRA, 401k) defer taxes until withdrawal. Taxable accounts pay annual taxes on dividends and realized gains. The model shows how tax treatment affects long-term wealth accumulation.
IRS reference: Publication 590-A (IRA Contributions), Publication 590-B (IRA Distributions)
Distributions Logic
The base case offers two withdrawal models. Rate mode applies a sustainable withdrawal rate (default 4%) to total portfolio value at retirement, producing an inflation-growing income stream — the 4% rule approach. Target Income mode lets the advisor set a dollar income target; the model computes the gap after non-asset income sources and expected RMDs, then fills that gap by drawing from asset tiers in priority order (taxable first, then tax-deferred, then tax-free by default). For more explicit year-by-year control over which accounts are drawn and when, use the Structured Withdrawals strategy — when active, it supersedes the base withdrawal model.
Survivor Planning
For married couples, planning must account for the reality that one spouse will likely outlive the other. The survivor scenario shows how the portfolio evolves after the first death, including asset transfers, changes in RMDs (survivor inherits IRAs), and different life expectancy.
What drives the result
Determines initial portfolio composition by tax treatment. Higher balances mean more growth potential but also higher RMDs in retirement.
$500k in Roth IRA vs Traditional IRA produces very different tax outcomes over 30 years
Drives annual growth. Small changes compound dramatically over decades. 7% vs 8% return produces ~$300k difference on $1M over 30 years.
$1M at 7% = $7.6M after 30 years; $1M at 8% = $10.1M after 30 years (+$2.5M)
Increases account balances year-over-year. Pre-tax contributions reduce current taxes but increase future RMDs. Roth contributions don't reduce current taxes but create tax-free growth.
$23k annual 401k contribution over 20 years at 8% = ~$1.05M in account balance
Determines when contributions stop and when retirement withdrawals begin. Earlier retirement = less time to accumulate, more years of withdrawals.
Retiring at 62 vs 67 means 5 fewer years of contributions and 5 more years of withdrawals
In Rate mode, the withdrawal percentage drives the annual draw from total portfolio value — higher rates mean faster depletion. In Target Income mode, the annual dollar target drives draws by filling the gap between the target and other income sources; the draw varies year to year based on Social Security timing, pension amounts, and RMD levels. Both modes only apply to the base case — the Structured Withdrawals strategy replaces them in the strategic case.
Rate 4% on $1.5M = $60,000 draw year 1. Target $90,000 with $52,000 in SS + RMDs = $38,000 drawn from assets year 1.
Determines projection horizon. Longer life expectancy = more years of withdrawals, higher risk of portfolio depletion.
Living to 95 vs 85 means 10 extra years of withdrawals (~$400k-$1M depending on withdrawal rate)
Sets how much of a withdrawal is taxable, and — unless the account overrides it — the gain realization rate applied to each year of growth. Higher basis ratio = less tax-efficient (more turnover). Lower basis ratio = more tax-efficient (buy-and-hold).
80% basis ratio = high turnover portfolio; 20% basis ratio = buy-and-hold portfolio
Assumptions
- Constant investment return rate across all account types
- Annual rebalancing maintains target allocations
- No market volatility or sequence of returns risk
- Life expectancy assumptions are deterministic (not probabilistic)
- Transactions (contributions, withdrawals, transfers) occur at start of year
- All transferred assets maintain same tax treatment
Limitations
- Does not model market downturns or bear markets
- Does not account for varying returns by asset class
- Does not model legacy/estate planning distributions
- Does not account for changes in contribution limits beyond current year
- Survivor scenario assumes all assets transfer (no estate taxes, beneficiaries, etc.)
- Inherited IRA distributions are not automatically reinvested — the balance is drawn down to zero over the distribution period. Proceeds are not credited to any other account unless the advisor manually enters corresponding contributions on the Base Data tab.
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.