Page 96 - Mumme Booklet

DRAFT

The Probability Analysis - Goal Coverage graph depicts what percentage of your goal is covered at the end of
each of the 500 trials run. The trials’ aggregate results are shown in the order of their success, with the most
successful trials appearing on the left side of the graph and the least successful trials appearing on the right
side. The percentage of goal coverage for a trial is determined by calculating the present value of resources
that would be required to cover 100% of the goal, given the return rates and inflation rates that occur during
the trial, and comparing that figure to the resources available to cover the goal. For a retirement income goal,
these resources would include pension income, Social Security, and assets that can be withdrawn from
retirement accounts that you identified as being in part of your resources. The graph only displays variability
in the outcome of trials where less than 100% of goal coverage occurs. There may be a significant amount of
variability in the outcome of trials where goal coverage is greater than 100% that is not shown. For example, if
250% of the goal was covered by available resources in a given trial, the trial will be depicted in the graph as
having 100% goal coverage. Additionally, the graph does not indicate when or how shortages occur in trials
that fail to cover 100% of a goal. That is, if a retirement income goal trial reflects 90% goal coverage, the
unfunded 10% of the income goal may occur at the beginning, end, or throughout of the retirement period
depending upon how resources are distributed over time within the plan.

The Probability Analysis – Assets Available graph shows how the investment portfolio for your resources
performed in different trials of the simulation, compared to the assumptions you made about rates of return
and inflation in what is referred to as the “Fixed Rate Plan.” The 90 , 50 , and 10 percentile show the results
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of the 500 trials in the growth of the investment portfolio over time, in order of success, of the 50 ranked (90 th
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percentile), 250 ranked (50 percentile—also the median), and 450 ranked (10 percentile) trials.
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Asset Mix Assumptions: The Probability Analysis can model your current asset mix, as shown in the
Resources pages for your goal, or can model a different asset mix. See the Probability Analysis Portfolio
Assumptions section above for information about the asset mix(es) assumed in the Probability Analysis.
Asset Class Assumptions: We simulate returns of different asset classes over the number of years
available to achieve a goal. We assume that assets classified as “Other” are invested in the US Equity - Large
Cap asset class. The Expected Return assumptions shown here are assumed geometric and arithmetic mean
returns. Geometric mean returns are lower as a function of the volatility. As explained above, the geometric
and arithmetic mean returns vary over time, as the model’s assumptions about the economy and inflation
shift. What follows are results of the model for geometric and arithmetic mean returns over a 30-year time
horizon. Numbers for Interest, Dividends, Tax-Free and Deferred Growth are components of the Expected
Return - Geometric:
Expected Expected
Capital Tax Deferred Return- Return- Standard
Asset Class Interest Dividends Gains Free Growth Geometric Arithmetic Deviation
US Equity - Large 0.00% 1.66% 1.59% 0.00% 3.26% 6.51% 7.45% 14.70%
Cap
US Equity - Mid Cap 0.00% 1.51% 2.27% 0.00% 3.78% 7.56% 8.74% 16.49%
US Equity - Small 0.00% 1.20% 2.56% 0.00% 3.77% 7.53% 9.09% 18.89%
Cap
Int'l Developed 0.00% 2.71% 0.42% 0.00% 3.13% 6.26% 7.38% 16.07%
Markets
Int’l Emerging 0.00% 2.19% 1.56% 0.00% 3.75% 7.50% 9.44% 21.38%
Markets
Real Estate 0.00% 3.50% 1.61% 0.00% 1.28% 6.39% 8.04% 19.51%
Securities
Commodities 0.00% 0.00% 1.31% 0.00% 1.31% 2.62% 3.81% 16.98%
Fixed Income 4.32% 0.00% 0.00% 0.00% 0.00% 4.32% 4.38% 4.01%
Other 0.00% 1.66% 1.60% 0.00% 3.26% 6.51% 7.45% 14.70%
Cash 2.65% 0.00% 0.00% 0.00% 0.00% 2.65% 2.69% 3.30%

Asset Class Correlations: The following are the asset class correlation coefficients that existed over a
30-year time horizon:
Asset
Class* LC MC SC DEV EMR RE COM FI OTH CSH
LC 1.00
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This plan is not complete without the Assumptions and Disclosures pages appearing at the end.
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