Staying Ahead Of Inflation

The powerful new FuturePathSM financial resource from T. Rowe Price can give you the knowledge you need to achieve the retirement you envision.

reaming about the life you see for yourself in retirement can be an effective first step in your overall financial strategy. Think about the places you'd like to go, the pastimes and hobbies you want to pursue, and the visits to family that will fulfill your life," says Judith Ward, CFP®, a senior financial planner with T. Rowe Price. Although you may have committed to saving for retirement for many years, you may not have worked out the details and financial implications of your plans. It can be challenging to get a clear picture of exactly where you stand now—and where you will be in the future. But no matter what kind of retirement you have in mind, you'll want to know the answer to one question: Will my retirement income be enough to support my lifestyle?


Consider Louis and Mary, a couple in their mid- to late 50s who are saving for retirement but juggling so many daily and near-term concerns that it's difficult for them to talk about the steps they could take now and the impact these would have on their future. What if Mary worked a few years longer? How would this change their future financial picture?

The couple has two children, a son finishing college and an older daughter who is planning to get married in a year. They have a mortgage that they plan to pay off by the time they retire, college tuition and car payments, and a love of travel—something they hope to do more often in retirement. At the same time, fully funding their son's final two years of college and paying for the wedding are important goals for them. They still have savings in a 529 plan, but not enough to cover the remaining tuition. Although they both think retiring at age 65 would be ideal, Mary is happy with her job and would consider working longer. The couple has outlined all of these details, but they don't know how their goals and decisions will all add up for retirement.

Let's take a look

"Many individuals may have an idea of retirement but just haven't made the time to map out how they're going to get there, much less even discussed their thoughts with a spouse or partner," Ward says. "FuturePath provides a vision of the future to help people plan together and explore possibilities so they can be more assured as they near retirement."

FuturePath brings clarity to the complexity of planning for retirement as you manage the demands of your life today. This retirement planning resource provides guidance as you consider the various decisions you'll need to make: when to retire, whether to save more or even less, and at what age to begin your Social Security benefits. After you enter information about your current circumstances and future plans, FuturePath gives you a Confidence Score to help you see how the actions you take can improve your retirement readiness. The resource can also help you and your spouse or partner have a conversation about the life you see for yourselves, the income needed to support that vision, and how you can realize your dreams.

Your current situation. FuturePath enables you to see how your retirement income may be affected by each of your decisions, such as choosing to save more, retire earlier, or work in retirement. The resource's projections are based on your current balances—in T. Rowe Price accounts and accounts held at other financial institutions—and financial details, including salary and savings rate.

What-if scenarios. FuturePath then estimates how your assets may change over time, based on a number of factors, including the amount of income you plan to withdraw during retirement. The online resource even allows investors to include financial considerations—such as additional income, health costs, or paying for a wedding—to help you visualize how those events may affect your retirement.

The adjustments. FuturePath then generates a Confidence Score on a scale up to 100. The Confidence Score suggests how confident you can be about your retirement planning goals by considering two primary risks: 1) the likelihood that your savings will last throughout your retirement; and 2) the likelihood that your portfolio will keep pace with inflation while reducing the impact of short-term market downturns. Current portfolio balances, asset allocations, annual savings, and desired retirement income, among other factors, contribute to the score. Changes made in any one area will affect the score, giving you a good idea of the impact your decisions will have.

No matter how near or far away from retirement you are, the actions you take now can have a lasting impact on your life ahead. The power of FuturePath lies in its ability to help you estimate and explore how the decisions you make today can shape your retirement. One overlooked decision—when and how to claim Social Security benefits—may be more complex than you think and have significant implications on your finances throughout the rest of your life. Our second feature, "Projecting Your Social Security Benefits," provides a detailed examination of the factors you should consider before making this important decision.

Note: Clients whose relationships with T. Rowe Price are limited to certain accounts, such as employer-sponsored retirement plans, will not yet be able to access FuturePath.


Social Security and Pension Benefits
Any Social Security estimates are based on your current annual salary, current age, and stated age at retirement. The estimates are based on current law; the laws governing Social Security benefits and amounts are subject to change. The accuracy of the estimate depends on the pattern of your actual past and future earnings. The estimate may not be representative of your situation. Visit socialsecurity.gov for more information.

FuturePath estimates each person's Social Security benefits independently. When one spouse or planning partner predeceases another, FuturePathSM assumes the surviving spouse/partner is eligible to receive the higher of the two estimated Social Security benefit amounts through the end of the couple's retirement horizon. If your planning partner is not your legal spouse, Federal law may preclude you from receiving Social Security benefits associated with the deceased partner's work history.

For pension benefits, FuturePathSM allows you to assume that a portion of the pension benefit amount will be paid to a surviving spouse/partner. Federal/state laws may preclude a surviving spouse/partner from receiving pension benefits associated with the deceased spouse's/partner's work history.

Monte Carlo simulations model future uncertainty. In contrast to tools generating average outcomes, Monte Carlo analyses produce outcome ranges based on probability, thus incorporating future uncertainty.


  • Underlying long-term rates of return for the asset classes are not directly based on historical returns. Rather, they represent assumptions that take into account, among other things, historical returns. They also include our estimates for reinvested dividends and capital gains.
  • These assumptions, as well as an assumed degree of fluctuation of returns around these long-term rates, are used to generate random monthly returns for each asset class over specified time periods.
  • The monthly returns are then used to generate 1,000 scenarios, representing a spectrum of possible return outcomes for the modeled asset classes. Analysis results are directly based on these scenarios.
  • Required minimum distributions (RMDs) are included. In the simulations, if the RMD is greater than the planned withdrawal, the excess amount is reinvested in a taxable account.


  • The analysis relies on return assumptions, combined with a return model that generates a wide range of possible return scenarios from these assumptions. Despite our best efforts, there is no certainty that the assumptions and the model will accurately predict asset class return ranges going forward. As a consequence, the results of the analysis should be viewed as approximations, and users should allow a margin for error and not place too much reliance on the apparent precision of the results. Users should also keep in mind that seemingly small changes in input parameters (the information the user provides to the tool, such as age or contribution amounts) may have a significant impact on results, and this (as well as mere passage of time) may lead to considerable variation in results for repeat users.
  • Extreme market movements may occur more often than in the model.
  • Some asset classes have relatively short histories. Actual long-term results for each asset class going forward may differ from our assumptions, with those for classes with limited histories potentially diverging more.
  • Market crises can cause asset classes to perform similarly, lowering the accuracy of our projected return assumptions and diminishing the benefits of diversification (that is, of using many different asset classes) in ways not captured by the analysis. As a result, returns actually experienced by the investor may be more volatile than projected in our analysis.
  • The model assumes no month-to-month correlations among asset class returns (correlation is a measure of the degree in which returns are related or dependent upon each other). It does not reflect the average duration of bull and bear markets, which can be longer than those in the modeled scenarios.
  • Inflation is assumed to be constant, so variations are not reflected in our calculations.
  • The analysis assumes a diversified portfolio, which is rebalanced on a monthly basis. Not all asset classes are represented, and other asset classes may be similar or superior to those used.
  • Taxes on withdrawals are not taken into account, nor are early withdrawal penalties.
  • The analysis models asset classes, not investment products. As a result, the actual experience of an investor in a given investment product (e.g., a mutual fund) may differ from the range of projections generated by the simulation, even if the broad asset allocation of the investment product is similar to the one being modeled. Possible reasons for divergence include, but are not limited to, active management by the manager of the investment product or the costs, fees, and other expenses associated with the investment product. Active management for any particular investment product—the selection of a portfolio of individual securities that differs from the broad asset classes modeled in this analysis— can lead to the investment product having higher or lower returns than the range of projections in this analysis.


  • The primary asset classes used for this analysis are stocks, bonds, and short-term investments. An effectively diversified portfolio theoretically involves all investable asset classes including stocks, bonds, real estate, foreign investments, commodities, precious metals, currencies, and others. Since it is unlikely that investors will own all of these assets, we selected the ones we believed to be the most appropriate for long-term investors.
  • Results of the analysis are driven primarily by the assumed long-term, compound rates of return of each asset class in the scenarios. Our corresponding assumptions, all presented in excess of inflation, are as follows: for stocks, 4.90%; for bonds, 2.23%; and for short-term investments, 1.38%.
  • Investment expenses in the form of an expense ratio are subtracted from the return assumption as follows: for stocks, 0.70%; for bonds, 0.60%; and for short-term investments, 0.55%. These expenses represent what we believe to be a reasonable approximation of investing in these asset classes through a professionally managed mutual fund or other pooled investment product.


  • The asset allocation for the investments you've included in FuturePathSM has either been selected by you or, for aggregated assets, is provided using the Morningstar classification of individual securities and holdings within mutual funds to categorize them as stocks, bonds, or short-term investments. Any percentage of holdings classified by Morningstar as "other" has been assigned to stocks.
  • Your target asset allocation presents a suggested allocation based on your age or the age of your spouse/partner if he or she is older. This target reflects a suggested allocation of investments that has the potential to help your portfolio keep pace with inflation while reducing market volatility. There is no assurance that the recommended asset allocation will either maximize returns or minimize risk or be the appropriate allocation in all circumstances for every investor with a particular time horizon.
  • Your withdrawal amount from investments is displayed in today's dollars for the current year and is assumed to increase by 3% each year throughout the retirement horizon. These amounts do not take any taxes into account that may be due upon withdrawal.
  • The modeled asset class scenarios described above and your projected withdrawals from investments may be calculated at, or result in, a Simulation Success Rate. Simulation Success Rate is a probability measure and represents the number of times our outcomes succeed (i.e., has at least $1 remaining in the portfolio at the end of retirement). This Simulation Success Rate is the primary component of the Confidence Score.

IMPORTANT: The projections or other information generated by FuturePathSM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The simulations are based on assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts present only a range of possible outcomes. Actual results will vary with each use and over time, and the potential for loss (or gain) may be greater than demonstrated in the simulations.

The results are not predictions, but they should be viewed as reasonable estimates.
Source: T. Rowe Price Associates, Inc.

photograph from getty images
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