How are account balances modeled over the course of the plan in Life Hub?
Modeling individual account balances in a multi-account portfolio creates challenges. Here's how Income Lab faces them in Life Hub.
Last published on: August 28, 2025
Challenges with modeling individual accounts as part of a full portfolio
When modeling the balances of individual accounts that make up an overall portfolio, certain challenges arise that force modeling decisions between less-than-ideal options. The main challenge is that, if individual account returns are modeled according to each account's asset allocation, differences in allocations will drive the overall portfolio allocation to drift over time toward higher stock allocations than the planned portfolio target.
For example, imagine we have a $1 million portfolio made up 50/50 of an IRA and a taxable account. The IRA is invested entirely in bonds with an assumed average growth rate of 3% and the taxable account is invested entirely in stock with an assumed average growth rate of 6%. If we applied these rates of return individually, we would see the stock/bond allocation drift to 64/36 over 20 years. (This example assumes no contributions or withdrawals.)
| Year | Taxable Account | IRA | Stock Allocation | Bond Allocation |
| 0 | $500,000 | $500,000 | 50% | 50% |
| 5 | $669,113 | $579,637 | 54% | 46% |
| 10 | $895,424 | $671,958 | 57% | 43% |
| 15 | $1,198,279 | $778,984 | 61% | 39% |
| 20 | $1,603,568 | $903,056 | 64% | 36% |
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In order to avoid this drift, there are two options:
- Model the growth of each account using the assumed overall portfolio average growth rate.
- Specify a rebalancing and reallocation plan among accounts to change account-level asset allocations over time and maintain the target asset allocation.
Income Lab (and all other planning software, to our knowledge) takes option #1. The downside of this option is that the projected balances of individual investment accounts will be off as time goes on. However, specifying a rebalancing and reallocation plan, as in option #2, for a realistic plan that could have 5-10 investment accounts and tens of asset classes is impractical to the level of being impossible.
The reason #2 is so hard is that a fully specified plan for reallocation and rebalancing among accounts would have to consider restrictions on withdrawals and additions to individual account types (e.g., IRA contribution limits and age-based withdrawal penalties), preferences for avoiding triggering of long-term capital gains in taxable accounts, hierarchies of preferences for holding particular asset classes in different account types, and priorities among actual accounts for the movement of money. While financial advisors will indeed typically execute reallocation and rebalancing over time, plans for these actions cannot easily be stated ahead of time.
Like so much in financial planning, the choice of #1 over #2 is a choice to make analysis possible, even if it is imperfect in known ways.