FAQ: How to Model Down Markets and/or Negative Return Years

Overview: How Adviice Handles Projections

Adviice projections are based on annual planning assumptions, which means values like investment balances and returns are typically assessed on a yearly basis. When entering current asset values during the Discovery Phase, it's best to enter the beginning-of-year balances.

However, if markets decline during the year—or if you want to test the impact of a future downturn—you can model those changes in two key ways.

Option 1: Adjust Account Balances Using Advanced Options

Use this method when a downturn has already happened and you want to reflect current, lower account values.

Steps:

  1. Copy Your Scenario
    • From the Projections screen, make a copy of your base scenario so the original remains unchanged.
  2. Open Advanced Options
    • In the copied scenario, open the Advanced Options section.
  3. Edit Beginning-of-Year Account Balances
    • Update the balances to reflect actual values after the downturn.
  4. Recalculate the Plan
    • Recalculate the scenario to view the updated success rate and retirement projections.

Option 2: Apply Negative Returns in a Specific Year

Use this method when you want to simulate a downturn occurring in a future year, such as the first year of retirement.

Steps:

  1. Go to the Year You Want to Adjust
    • In the Projection Table, navigate to the target year.
  2. Locate the Account(s) You Want to Adjust
    • Open the detailed view for the relevant accounts.
  3. Apply a Negative Return
    • Enter a negative rate of return for that year in the appropriate fields.
  4. Recalculate the Plan
    • Review the resulting changes in net worth and success rate after the adjustment.

Best Practice: Use the Success Rate Chart

While manual overrides can be helpful, the Success Rate Chart is the most effective way to model market downturns. It simulates historical sequences of returns, inflation, and bond performance—capturing the impact of real-world volatility and events across the last century.

This provides a more complete view of sequence-of-returns risk and long-term plan resilience without needing manual inputs.

Things to Watch For

  • Negative Dividends: Manually applying negative returns may result in negative dividend or capital gain assumptions, which may not accurately reflect actual tax treatment.
  • Tax Implications: Lower account values or poor returns can trigger changes in benefits eligibility and taxable income.
  • Avoid Over-Optimization: A 100% success rate isn’t always necessary or desirable—some flexibility allows for more realistic planning.