Virtually every financial professional who advises clients on retirement distribution strategies should be familiar with the work of Bill Bengen. In 1994 Bengen, then a relatively unknown financial planner, published an article in the Journal of Financial Planning entitled “Determining Withdrawal Rates Using Historical Data.” Here, Bengen articulated what has come to be known as “the 4% rule.”

Although his research has since been expanded upon by him and others, to this day many use the 4% rule of thumb as the benchmark for a safe withdrawal rate in retirement.

One of the conclusions of the original article was that, given historical returns, a $1 million portfolio with 50% equities and 50% intermediate government bonds, rebalanced annually, was highly likely to support an initial $40,000 withdrawal (adjusted annually for inflation) for a 30-year period.

While the 4% rule is still a good starting point, there are other factors that you and your client may want to consider. For example, most investment portfolios today are likely to diversify across additional asset classes. What would a Bengen-style analysis look like given your prospect’s current asset allocation? What would it look like given your recommended portfolio? What would the impact of a 35-year time horizon be, instead of 30 years, on the sustainability of the portfolio?

The Big Picture App, created by the Los Altos, Calif., firm Investments Illustrated, can provide the answer to all of these questions, and much more.

Exploring The App
When you log on to the Big Picture App for the first time, it becomes immediately obvious that the designers come from the “less is more” school. Virtually all of the action takes place on a single screen, though there are supplementary ones. Let’s start with planning in retirement, since that is the main draw of the app. Along the bottom of the screen, there are five boxes, each representing a different variable: withdrawal rates, years in retirement, initial investments, legacy capital (if any), and the client’s success rate.

The app comes loaded with three portfolios: conservative, balanced and aggressive. You can access these and modify them by clicking the icon to the left of the screen. In my base examples, only two asset classes are used: five-year government bonds and large-cap U.S. stocks. The conservative portfolio is 20/80 stocks/bonds, the balanced portfolio is 50/50 and the aggressive one is 80/20. When I go back to the main screen, I see a bar chart that displays the projected success rate of each portfolio (the chart displays whatever variable you are solving for). The historical success rate is the proportion of historical 30-year periods over which this applied portfolio would have met or exceeded the stated amount of legacy capital with a given initial investment, spending level or other inputs. The app back-tests the applied asset allocation in combination with other inputs over monthly rolling periods that start in 1926.

In my initial run, I used a 4% withdrawal rate, a 30-year retirement period, a $1 million initial investment, and a $100,000 legacy. The app estimates a 79% success rate for the balanced portfolio, an 87% success rate for the aggressive portfolio and a 27% success rate for the conservative portfolio.

I share the results with my clients—a boomer couple with a limited tolerance for risk who see that the conservative portfolio has little chance of meeting their goals. They are comfortable with the allocation of the balanced portfolio, but they ask if there is a way we can boost the probability of success without going 80% into equities. I create a portfolio for them consisting of 50% fixed income (40% intermediate U.S. government and 10% global bonds). I allocate the equity portion as follows: 20% to large cap, 5% to mid-cap, 10% to small cap, 15% to international. According to the app, that results in a 92% probability of success. Since I can modify allocations with either sliders or the keyboard, creating the custom allocation takes less time than it does for me to write about it.

Next, we look at some of the other variables. For example, what would happen if we needed the portfolio to last for 35 years? Well, if we change that variable to 35 years, we see that we can maintain our 92% probability of success if we lower our annual withdrawals to 3.7%. Next, we see if we can get a 4% withdrawal and a high probability of success by eliminating the $100,000 legacy. That leaves me with an 83% chance of success. If I try a 3.9% withdrawal rate with no legacy, I get a 90% probability of success on the custom portfolio, which the couple finds acceptable.

In this example, I’ve used the default assumptions of annual rebalancing and a 1.0% management fee; however, if I’d like to change those assumptions, there is another icon to the left of the screen that lets me set a different management fee. I can toggle the rebalancing period to do it annually, do it once every three years, do it once every five years, or not do it at all.

In the retirement section, there are two other graphs you can cycle through. For instance, you can show the relationships between management expenses and other selected variables—that allowed the success rate in my example to climb to 97% when the management expenses dropped to 0.4%. Conversely, if the management expense climbed to 1.6%, the probability of the scenario’s success dropped to 64%.

The third chart is a good educational piece. It displays a safe withdrawal rate for the selected $1 million portfolio with a 35-year time horizon from 1926 to the present.

For those clients in the accumulation phase, you can toggle to the “Saving for Retirement” view. Here, the variables are net monthly income (after tax monthly income in today’s dollars), the savings rate, the years to retirement, the initial investment, the savings goal, and success. This module works in a fashion similar to the retirement income module’s. Let’s say we set the savings goal at $1 million, assume the client is 25 years away from retirement, allow the client to save 15% of net monthly income, and assume the client has already saved or inherited $350,000. We further stipulate that the client wants a 90% probability of success.

The app will solve for the minimum required net monthly income needed to reach the goal ($7,234), assuming the asset allocation is the same as it was in the previous example. Or we could say that the client has a net monthly income of $8,000 with the same portfolio, the same savings rate, the same initial investment and years to retirement, the same savings goal and same required probability of success. We would then solve for the safe savings rate (which is 13%). Now let’s assume that the client is willing to save more to retire earlier—18% net. The app will tell us that the client can retire two years earlier.

The default graph in this section compares the portfolios in terms of the variable selected. For example, if we are solving for years to retirement, it will illustrate how many years the other default portfolios (conservative, balanced and aggressive) would require to meet the goal. If you solve for success rates, it will illustrate the probability of the other portfolios meeting the goal.

The other graph available in the savings module shows the relationship between the variable in question and management fees. So, the lower the management fee, the higher the success rate of the selected portfolio.

The app’s third module contains educational charts on the principles of investing, including charts on the difference in starting capital required to reach $1 million across various asset classes from 1926 to 2015; the time and risk; the duration of downturns and recoveries; the benefits of diversification; etc.

First Impressions
These is a lot to like about this app. It helps present Bengen’s research in an easy-to-use, consolidated format. This can help set client expectations. The app can also help explain concepts like safe spending levels and provide insights into the trade-offs clients can make with their retirement spending, the number of years they want to be in retirement and the legacy they want to leave.

Because the app’s designers have taken a minimalistic approach, there are not a lot of bells and whistles to master. When you log on for the first time, you are offered a brief tour of the app, which covers most of what you need to know. But there is a small information icon available throughout the program to help users understand the meaning of variables and graphs. For example, if you don’t know whether the saving rate is a percentage of gross or net income, just mouse over the info icon and a box will pop up with a full explanation.

While I’m generally in favor of a clean design, in this case the developers may have gone too far. The app lacks some controls that advisors will want. For example, you can’t do much customization of reports. On screen, you have only one choice in typing in your firm’s name, your own name or your client’s name. The intervals on the factors measured against expense ratios are not helpful for most advisors, and the intervals are fixed. You can’t illustrate your fee against that of a costlier competitor, and you can’t illustrate how consolidating more assets with your firm to reach a break point might improve the client’s financial picture.

There is no account aggregation, so you can’t pull in a client’s portfolio—instead you must create a model approximating the client’s current portfolio, using the 10 available asset classes. The good news is that you can create this hypothetical portfolio in a couple of minutes or less.

Overall though, we think that the Big Picture App has appeal. It is a great tool when working with prospects to rapidly illustrate your value and to run through some basic retirement savings or spend-down scenarios. You can quickly show them how saving more, retiring later or altering the portfolio composition affects spending during retirement. You can manipulate multiple variables with a few mouse clicks. At $29.99 a month for a single-user license, with discounts available for volume purchases, this is an affordable product. You don’t need to win over many prospects or educate many clients to get your money’s worth.