T. Rowe Price - Workplace Retirement

AGE-BASED SAVINGS GOALS METHODOLOGY AND ASSUMPTIONS

Age-based savings goal ranges are based on a target savings range at an assumed retirement age of 65, and a savings trajectory over time needed to achieve the target. In determining age-based savings goal ranges, we assume a savings rate of 6% at age 25 and increase the savings rate by 1% annually until reaching the necessary savings rate to achieve the target savings range at retirement. (We assume 3% of the savings rate is attributable to employer contributions.) While we believe most people should aim to save at least 15% (including employer contributions), the necessary savings rate can be higher or lower depending upon marital status and household income which we assume is between $75,000 and $250,000 (“Tested Salaries”). Household income grows at 5% until age 45 and 3% (the assumed inflation rate) thereafter. Investment returns before retirement are 7% before taxes, and savings grow tax deferred.

In determining the target savings range at retirement, we assume 4% of assets will be withdrawn at age 65 (an annual withdrawal rate intended to support steady inflation adjusted spending over a 30-year retirement). The withdrawal amount is calculated as the income that we estimate is necessary to support spending in retirement minus estimated Social Security benefits. (That withdrawal amount divided by preretirement income equals the “Non-Social Security Income Replacement Ratio”). The Non-Social Security Income Replacement Ratio, which varies widely for the Tested Salaries, reflects estimated spending needs in retirement (including a 5% reduction from preretirement levels); Social Security benefits (using the SSA.gov Quick Calculator assuming claiming at full retirement ages and the Social Security Administration's assumed earnings history pattern); state taxes (4% of income, excluding Social Security benefits); and federal taxes (based on rates as of January 1, 2019). While federal tax rates are scheduled to revert to pre-2018 levels after 2025, those rates are not reflected in these calculations.

The mid-points of the age-based savings goal ranges are good starting points for benchmarking your progress, but circumstances vary by person, and over time. The savings goal ranges cannot guarantee retirement income of any specific amount and may not be applicable for those with earnings that vary widely from the Tested Salaries. The assumptions used may not reflect actual market conditions or your specific circumstances, and do not account for plan or IRS limits. These savings goal ranges assume you'll be dependent primarily on personal savings and Social Security benefits in retirement. However, if you have other income sources (e.g., pension), you may not have to rely as much on your personal savings, so your savings goal range would be lower.

The material is provided for general and educational purposes only, and is not intended to provide legal, tax, or investment advice. This material does not provide fiduciary recommendations concerning investments or investment management, nor should it serve as the primary basis for an investment decision.

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RETIREMENT INCOME EXPERIENCE AND CONFIDENCE NUMBER® SCORE METHODOLOGY AND ASSUMPTIONS

OVERVIEW

The Retirement Income Experience allows retirement savers to estimate the durability of their current savings across 1,000 randomly generated market scenarios, and to assess the impact of different savings rates, and time horizons on the projection of retirement income. The projections are used to provide retirement income estimates and to calculate a Confidence Number® score. The Confidence Number® score represents a snapshot of the likelihood that your retirement savings will be sufficient to generate income throughout retirement sufficient to meet an assumed or specified income goal.

The projections generated by the tool regarding the likelihood of various investment outcomes are based on historical performance data of specific asset classes as described below, but are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The tool presents only a range of possible outcomes. There can be no assurance that the projected or simulated results will be achieved or sustained. The potential for loss (or gain) may be greater than demonstrated in the simulations. Results may vary with each use or over time, depending on changes to your inputs or periodic updates to the underlying assumptions. See "Limitations."

You may change or input additional information in the FuturePath® tool that may impact your Retirement Income Experience, including your Confidence Number® score, as described below. If you make such changes or additions in the FuturePath® tool, please continue to use that tool to generate retirement income estimates and Confidence Number® scores. Please be sure to take other assets, income and investments into consideration in reviewing results that do not incorporate that information.

1. DATA USED AND HYPOTHETICAL PROJECTION METHODOLOGY

Data and Assumptions about You. In order to determine how likely your current and projected retirement savings are to last through retirement, we use data and assumptions about you, as follows.

The tool automatically imports your workplace plan balances and any personal retirement accounts held at T. Rowe Price. We do not distinguish among workplace retirement plan contribution sources; all sources are considered pre-tax savings. You may provide data about other T. Rowe Price and outside investment accounts through the FuturePath® tool.
We use Morningstar® asset classes to determine your current allocation and categorize them as stocks, bonds, or short-term bonds. Any percentage of holdings classified by Morningstar® as "other" has been assigned to stocks.
We use your salary information on file, a retirement age of 65 (unless you have specified a different age), and we assume you will need savings to last through age 95 (unless you have specified a different age).
We use your contributions (employee and employer, if applicable) over the last 12 months as your starting annual contribution amount. (If you have less than 12 months of contribution data, we use the data available as your annual contribution, and this may understate the estimate). Alternatively, you may specify a different annual savings amount. You will make contributions until your retirement age.
Your salary and contributions will increase at a rate to keep pace with inflation (assumed to be 3% based on historic inflation rates).
You will receive Social Security benefits beginning at age 70 (unless you have specified a different age), which we estimate based on your stated or assumed retirement age and salary information.
You will need retirement income equal to 75% of your current salary. You may customize your retirement income goal by changing estimated retirement expenses within the categories provided by the tool.

Calculating Hypothetical Future Values. The tool uses Monte Carlo analysis to generate 1,000 hypothetical market scenarios so that users can analyze hypothetical outcomes for specific asset class portfolios under a range of market conditions. (Asset classes used are limited to stocks, bonds and short-term bonds). Monte Carlo analysis provides ranges of potential future outcomes based on a probability model. Our Monte Carlo analysis creates potential simulated portfolio values by using asset class portfolio returns selected randomly from a consistent data set comprised of over 1 million potential monthly return values. The set of potential monthly returns was developed using the rates of return for each asset class, shown below. These rates account for the historical returns of the Representative Indices from the Index Data Start Date noted in the chart to 2016. We adjusted the historical returns to calculate long-term compound annual rates of return by combining the 2016 T-Bill rate with the difference between the returns of the Representative Indices and T-Bills during the look-back periods.

	Stocks	Bonds	Short-term Bonds
Long-term Compound Annual Rate of Return	8.3%	5.0%	3.8%
Representative Index	S&P 500	Bloomberg Barclay U.S. Aggregate Bond*	Barclay 1-3 Year Gov't Credit
Index Data Start Date	January 1960	January 1960*	February 1976

*IA SBBI Intermediate Government from January 1960 to December 1975. Bloomberg Barclay U.S. Aggregate Index since January 1976.

These returns do not reflect fees and expenses or the effects of inflation.

We assumed a variability of returns based on historic volatility data from market indices:

	Stocks	Bonds	Short-term Bonds
Annual Volatility	16.4%	6.3%	4.5%

Finally, we assumed that returns of each asset class would move in correlation to the other asset classes in a manner consistent with historical experience as follows:

	Stocks	Bonds	Short-term Bonds
Stocks		0.3	0.2
Bonds	0.3		0.8
Short-term Bonds	0.2	0.8

The correlation (which can range from -1.0 to 1.0) indicates how much the assets move in tandem. The closer the value is to 1.0 indicates the higher the tendency the assets have to move in the same direction.

We use the assumptions above for all retirement accounts.

Taxable Account Returns. If taxable accounts become part of the tool's withdrawal assumptions, see below, our model assumes that taxes decrease earnings of that account. Accordingly, the model uses data from the Lipper peer group for each asset class to calculate an assumed percentage of four categories of earnings with different tax impacts: realized short-term capital gains, realized long-term capital gains, qualified dividend payments and interest or nonqualified dividend payments. The coefficients used to determine the amount by which we assume taxes reduce earnings in taxable accounts (the "tax drag") are:

Asset Class	Tax Drag Coefficient
Stocks	13%
Bonds	24%
Short-term Bonds	28%

These coefficients are used to reduce monthly return assumptions for your taxable assets in the 1,000 hypothetical market scenarios.

Retirement Income Projections and Withdrawal Assumptions. In order to calculate your retirement income estimates and your post-retirement plan balance, we start with the assumed value of your account at an asset class level based on the median result from the 1,000 hypothetical return projections. Projected retirement plan balances are displayed in future dollars. We assume withdrawals from the median projection pro rata across asset classes at the assumed or stated income goal level, increased each year for inflation. Results and recommendations provided in this tool are based on the required minimum distribution (RMD) age of 70 ½. Recent changes in the law impact RMD timing requirements for individuals that turn 70 ½ on or after 1/1/2020, and they will not need to start taking RMDs until they turn 72. To the extend Social Security payments or required minimum distributions exceed your assumed or stated retirement income goal, we assume the amounts are reinvested in a taxable account.

In withdrawing to meet the income goal, we assume a specific withdrawal sequence from account types. We start with any required minimum distributions. We then move to taxable accounts (if any), followed by tax-deferred accounts. Finally, we withdraw from any tax-free Roth IRA accounts.

Our monthly and annual retirement income estimates show withdrawal amounts that succeed in at least 80% of the market simulations (i.e., leave at least $1 in the plan at the end of retirement), and are displayed in today's dollars (unless noted otherwise). The estimates do not take into account any taxes that may be due upon withdrawal.

Confidence Number® score. The hypothetical projections are used to determine your Confidence Number® score. This number is calculated on a 100 point scale and factors in two measures of risk. The primary basis of the Confidence Number® is the Simulation Success Rate, which is a probability measure and represents the number of times our outcomes succeed (i.e., have at least $1 remaining in the portfolio at the end of retirement). That score can be adjusted by the Portfolio Measure, which can move the Confidence Number® score by up to 3 points if the asset class portfolio under analysis varies from the T. Rowe Price model asset allocation for hypothetical investors of your age with your time horizon (see below).

Income by Source Chart. This graph represents the various sources of income in the first year of retirement, and if you delay Social Security benefits, the adjusted amounts in the first year your Social Security benefits are assumed to begin. Your workplace plan accounts are used to generate the estimates shown in the "Workplace Balances" portion of the graph. The "Additional Income Sources" portion of the graph includes an income estimate from any personal retirement accounts held at T. Rowe Price (including IRAs). The "Your Pension" portion of the graph provides an income estimate from any workplace pension plan.

2. FUTUREPATH® USERS

The following variables are exclusive to the FuturePath® tool but, if entered, will factor into the Retirement Income Experience calculations including your Confidence Number® score. However, these variables may not be editable (and may not even be viewable) outside the FuturePath® tool.

Spouse Desired Retirement Age
Spouse Age for the Savings to Last
Spouse Age of Last Contribution
Spouse Contribution Annual Amount
Expense Events for you or your spouse
Spouse Social Security
Other Income Events for either you or your spouse
Age of Last Contribution
Asset Allocation
T. Rowe Price taxable accounts and non-T. Rowe Price accounts

If you include or change any of these variables in the FuturePath® tool, you must return to that tool to make additional changes. Note that the FuturePath® tool converts savings goals imported from the workplace Retirement Income experience into a dollar amount that will not change with a change in salary. Please refer to the FuturePath® tool for additional details, including FuturePath® methodology.

Income By Source Chart for FuturePath® users. This graph represents the various sources of income in the first year of retirement, and if you delay Social Security benefits, the adjusted amounts in the first year your Social Security benefits are assumed to begin. Your workplace plan accounts (plus any additional retirement plan accounts entered in the FuturePath tool) are used to generate the estimates shown in the "Your Employer Sponsored Account(s)" portion of the graph. The "Additional Income Sources" portion of the graph includes an income estimate from any personal retirement accounts held at T. Rowe Price (including IRAs), and any other accounts and soures of income entered in the FuturePath tool (including income related to a spouse). The "Your Pension" portion of the graph provides an income estimate from any workplace pension plan (including any pension benefits entered in the FuturePath tool).

3. LIMITATIONS

While Confidence Number® score and the Retirement Income Experience have been designed with reasonable assumptions and methods, the tool provides hypothetical projections only and has certain limitations.

Failure of the model to accurately project actual market conditions, inflation or tax rates may result in over- or understatement of projected retirement income.
The salary and contribution growth rate assumption (3%) may not match your circumstances and may result in over- or understatement of retirement savings and income projections.
At certain salary levels, the failure to incorporate IRS or plan contribution limits may also result in overstated retirement savings and income projections.
Any information you manually enter in the tool will need to be updated by you to accurately reflect any changes in your profile, savings and investing data.
The failure to take into account taxes at distribution may result in overstated retirement income projections. Future spending capacity from the projected income stream will be impacted by taxes.
The use of current salary to estimate Social Security payments may not represent your situation.
The assumption that Social Security payments will increase by the amount of assumed inflation may result in overstated retirement income projections

The information provided in this tool is for general and educational purposes only, and is not intended to provide legal, tax, or investment advice. This tool does not provide fiduciary recommendations concerning investments or investment management. Other T. Rowe Price educational tools or advice services use different assumptions and methods and may yield different outcomes.

IMPORTANT: The projections or other information generated by the Retirement Income Experience 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 such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations.

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This website does not provide investment advice or recommendations. Nothing in this website shall be considered a solicitation to buy or an offer to sell a security, or any other product or service, to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful under the laws of such jurisdiction.

Schwab Personal Choice Retirement Account® (PCRA) is offered through Charles Schwab & Co., Inc. (Schwab), a registered broker-dealer that also provides other brokerage and custody services to its customers, Member SIPC.

Confidence Number and FuturePath are trademarks of T. Rowe Price Group, Inc.

T ROWE PRICE, RETIRE WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc. All rights reserved.
Copyright 2021, T. Rowe Price Investment Services, Inc. All rights reserved.

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