After you register and sign in to the program, you will find a menu item at the bottom of the data entry screen titled "Help Videos". A list of all of our Training/Help videos will be displayed.
There is one video that you should watch first called "Understanding the Backwards Calculation of Expenses. The way Nutshell calculates client living expenses is very simple but also very different than what you may have seen before. It is much faster and more accurate than the usual methods of itemizing expenses or simply asking the client how much income they need in retirement. We were able to get a U.S. Patent on the way Nutshell calculates client living expenses. It is critical you understand it to make sure the program gives you accurate cash flow results. If you're still not sure how it works after watching the video, please call out toll free number 888-909-9970 and we will go over it with you until you have a solid understanding.
There are also short videos for every data entry menu item like "Entering a Client" or "Entering Income" etc. that are specific to just that entry screen. When you are entering client information, you will find a tab at the top of every entry screen titled "Help Video" that will take you directly to the pertinent help video for that screen. If you have questions when you are entering data on an entry screen, just click on the "Help Video" tab and review the information. If you still have questions after watching the video, write them down and call our toll free line 888-909-9970.
Lastly, there is a video titled, "How to Read and Analyze the Report" that will help you understand the best way to to review the report, find and correct errors, and how to present it to your client. It will have many tips to save you time and get the most out of the report. It is a little longer than the other videos, but covers a lot of ground and will save you a lot of time later if you take the time up front to watch it first.
By clicking the What-If/Copy Plan button, the program makes an exact copy of the plan currently loaded and displayed at the top of the data entry section of the page. You will notice that pressing that button also clears the Description field of the Plan entry page. You will need to enter a new description for the What-If copy so you can distinguish it from the original plan from which you made the copy. Before making any data entry changes, you need to click the Save button and it will load the What-If copy of the plan and display its description at the top of the data entry page. This way you know you are working on the new plan.
For example, if you wanted to show a later retirement year for the clients, you might enter a description like "Retire at Age 70" and click save and then change the retirement age field on the Plan page to 70 and click save again. The program will then change when all the cash flow items automatically start and stop to reflect retirement at age 70. If you change the client retirement or Social Security withdrawal ages you might need to also go to the Income items for any Defined Benefit Pension or Social Security and update the annual income amount to reflect the later retirement age. You can also change anything else you want to model in the plan such as an earlier alternate withdrawal start date on a particular investment to begin 72t withdrawals before the specified retirement age.
The first thing you need to do is to go to the Plan/What-If page and make a copy of the last plan you prepared for that client. The description field will be blank and you can give it a new name, such as "Update for 20xx" to differentiate it from the plan you are copying, and click save before making any other changes. The program will make an exact copy of the last plan and amounts you entered as if they are starting in the current year. This means you do not need to enter all of the items you entered for the previous plan. This saves a lot of time, but the amounts will need to be updated as part of reviewing it with your client. You can eliminate items that are no longer there and add any new items that were not there last year.
You can describe this to clients by suggesting that planning is like flying from San Francisco to New York. You aim for New York right after take-off but the winds and weather will blow you off course and you need to adjust your heading on each review to still reach New York which represents your retirement goals. If you don't make those mid-course corrections you might end up in Miami or not reach your retirement goals at all.
This is something that you need to discuss with the client. Generally, it is good to use a conservative average over the past several years. If it is a fast growing company you could enter a higher cost of living percentage for future increases than you ordinarily would. It is helpful to have this type of client bring two or three past tax returns with him/her. Since the program calculates the client's expenses backwards by subtracting taxes and savings from income, what you are looking for here is the actual amount of money the client is putting in their pocket each year from the business.
If you are looking at the Schedule C for the business, you will want to add the depreciation back to the net business income since this is an accounting item and not an actual cash expenditure for the business. If the client normally gives themselves a bonus at the end of the year, you may want to enter the bonus separately and use a conservative average so you can break this particular item out on the cash flow report. For self employment income, select Salary from the Income Type drop down menu and check both the "Contributing to Social Security" and the "Self Employed" boxes on the Income data entry screen.
Inflation, Taxes, and Expenses
One of the biggest time savers and most effective aspects of the program is the backwards calculation of the client's current living expenses. The program takes the client's gross income and subtracts taxes and savings (which include all investment contributions, Social Security contributions, and Defined Benefit Contributions). If money hasn't been saved it simply must have been spent. It is actually much more accurate than itemizing or estimating retirement income needs because it takes every dollar into account. In addition, the advisor does not have to ask the client financial questions that some clients may be reluctant or embarrassed to disclose such as charitable giving, rehab for a family member, etc.
The program takes one further step, which is to subtract payments of limited duration such as house payments, loan payments, and other temporary "Extra Cost Items" (such as out of pocket college costs) because these payments, or expenses, are going to go away someday. The program does show them separately, on their own line on the cash flow report. After those types of payments are subtracted, what is left is everything else which is what we call, "Expenses that Continue for Life". It establishes the current standard of living that the clients are experiencing. They know how it feels and it gives them a reference point against which to compare future years.
When you apply the inflation rate to those expenses it becomes the measuring stick for every year going forward to see if the clients are going to be better-off or behind in future years and by how much given their current income, investment, and debt profile. The first question of every client is, "Am I OK financially?" Retirement in a Nutshell helps you answer this question and to lift the burden of "not knowing" off their shoulders. What a gift you are giving to them and, if there are shortfalls, you can identify them, make them less scary, and help them to work toward a solution. Don't be too concerned about telling the client they have shortfalls. Usually, they are well aware they don't have enough, but it helps you and them to quantify the problem and set goals.
Any account that will be used to generate future cash flow should be entered. Retirement accounts, 401k's, 403b's, 457's, IRA's, etc. should be entered as well as non-qualified brokerage and mutual fund accounts. You should enter whole accounts as an item rather than the individual investments inside an account in order to save space. It is important to try to keep the cash flow report streamlined for client comprehension.
Clients will often forget to tell you they are accumulating excess savings in their bank account every month. This is savings and needs to be entered as an investment item so the savings will be deducted when calculating their expenses backwards.
If a client is spending principal from an account to pay expenses each month, that account should be entered as well as the amount of the withdrawals. The cash flow report will then show when that account is depleted and no longer available. Defined benefit plans should be entered under income since they will be exchanged for an income stream at some future point in time. Accounts used only as a source of emergency funds should be entered as Assets.
College funding is not a retirement income asset but out of pocket costs for college or contributions to a college savings account are cash flow items that must be taken into account in the backward calculation of living expenses.
There are two ways to handle college related cash flow. The simplest way is to just enter the out of pocket cost or contributions to college accounts as a liability on the Loans/Liabilities screen and not enter the college funding account as an investment item since it will not be a retirement income source. You do this by going to the Loans/Liabilities menu item and on the drop down menu for Liability Type, select Extra Cost Item and enter a Liability Name like "College Cost for Brandon". Under Monthly Payment enter the monthly out of pocket cost. If it varies from month to month take the annual cost and divide it by twelve and enter that amount. Then put a start year which can be the current year and then an end year when the college costs will stop. If you have more than one child or person you are contributing to for College, enter the other ones as separate Liabilities since the start and stop dates might be different for each one.
The second way is a bit more complicated. If you or your client really need to enter and show the college savings account as an asset on the balance sheet, you can enter the college savings account as an Investment item. In this case, select the Investments menu item and select "New Investment". On the Investment data entry screen, enter the Investment Type from the drop down menu. For 529 Plans you would select Tax Free or taxable for accounts that don't get special tax treatment. Enter an assumed Growth Rate for the account from the drop down menu. Enter the rest of the investment fields as you would for any other investment. The program assumes that the Monthly Contributions to the account start in the current year and they stop at the age you entered for retirement. Normally, for College, this is not the case so you will need to select the "Options - Contributions" tab at the top of the entry screen and enter the year the contributions will stop as the "Alt. Contribution End Yr." You will also need to select the "Options - Withdrawals" tab and enter the "Alt. Start and End Yr." for the years you will be withdrawing the funds to use for College. On the main "Investment Details" screen you will want to enter the "Withdrawal Rate" as a dollar amount rather than a percentage. You can take the account balance in the year college withdrawals will start and divide it by the number of years it will be withdrawn for college to find the dollar amount. If you want the withdrawals to increase over the college years, you can enter an "Increase $ W/D Factor on the "Options - Withdrawals" tab.
Rental Real Estate
Unfortunately, many clients have not saved enough for retirement. Usually the clients in this situation know it, but they just don't know the magnitude of the problem. Retirement in a Nutshell will at least quantify the problem so you can begin to work with them to improve their situation. There is a page of the report that does a present value calculation to quantify the additional amount the client will need to save starting today to address the shortfalls. If the numbers are bigger than the clients can save right now, you should discuss saving what is possible.
On the second page of the "How to Read this Report" section is a list of ways to address shortfalls. You should go over this list with the client to see what strategies are viable for them. If there is no way to reposition assets for a greater return or increase income right now, you may discuss tightening their belt or working part time after retirement. The cash flow report will show the shortfall amount, year by year, so you can tell the client the amount they would have to tighten their belt or the amount they would have to make, after tax, if they work part time. Usually, the shortfall amount is much less than the amount the clients were making when they were working full time. This would allow them to work fewer hours per week and have more choice in where they work, making the option more attractive. Perhaps, they can develop a small business at home and work for themselves. You can create a What-If copy of the plan and model various options and scenarios until you come up with one that both you and the clients feel is realistic.
This is probably one of the more common questions we receive. If the plan shows big shortfalls after retirement, there are two possibilities: 1) The client did not save enough to maintain their current lifestyle with inflation built in or; 2) there is a problem with the data they did or didn't give you and the way it was entered into the program.
The first step is to make sure there isn't missing or incorrect information or something that was not entered into the program correctly. If the clients have a very high annual income then that can result in a very high living expense number that, with inflation, will create a very high target at retirement. In this case, the first question to ask is whether they are really spending all those dollars they receive in their bank accounts each month or is there money building up that they are not spending. If that is the case and they are not sure of the monthly build up then ask them how much it builds up over a year and divide by 12. You can enter that savings account under investments and enter the contributions as a monthly amount. This will increase the savings amount the program calculates and reduce the living expenses and lower the target for retirement and reduce the shortfall.
The second question to ask is if there are any current out-of-pocket expenses that are temporary and will go away in a future year. A good example of this is payments for college costs or to a college savings account. Another may be payments to support a parent or disabled family member for a period of time or temporarily higher health care expenses. If there are these types of costs, they would be entered under liabilities as an extra cost item and you can enter them starting in the current year and ending in some future year. This will also reduce the current living expenses and lower the bar and shortfalls at retirement.
If you have checked these items and double checked the taxes and contributions to investment accounts then they may actually have a large shortfall in maintaining their current standard of living at retirement. You could make a What-If copy of the plan and get a little less conservative with investment returns or reduce their living expenses at retirement a bit by going to the Inflation/Taxes input tab and open up the screen and select the Override Expenses tab and enter a lower expense amount at retirement. You can look at what the program calculated for expenses in the retirement year and calculate how much a 10 or 20% reduction would be and enter that amount. The program will then adjust that number for inflation going forward.
Try not to view shortfalls as a bad thing. They get the client's attention and cause them to disclose things they might not have told you about and they will help you make sure all of the entries are correct. Also, they realize they need you to help them address the problem. On the second page of the 'How to Read this Report" pages is a checklist of items that might help address a shortfall. The last resort is to work longer part time or work longer full time, if there are no other reasonable options. We believe that knowing is better than not knowing or worrying and making it bigger than it is.