Why projected portfolio growth in Life Hub may differ from a simple calculator

Income Lab presents expected investment returns in real terms, meaning after accounting for inflation. Life Hub, however, can display projected balances in either today’s dollars or future dollars.

When Life Hub displays future dollars, it incorporates inflation into the projection. This means the percentage increase in the projected balance will generally be higher than the real return displayed in the portfolio assumptions.

In addition, Life Hub models the household’s complete financial plan—not only investment growth. Contributions, withdrawals, transfers, taxes, and other cash flows may all affect the balances shown. Life Hub uses a straight-line appreciation model where constant returns, constant inflation, and spending stay on whatever Income Path is applied to the plan (Flat, Age-Based, or Custom), with no adjustments to spending more if they could, or less if spending was too risky.

Real returns versus future-dollar growth

A real return measures how much the portfolio is expected to grow in purchasing power by netting out inflation. A nominal return includes inflation and represents growth in the number of future dollars. Nominal values are closer to the amounts a client might see on a future account statement.

Income Lab uses the following relationship:

Nominal return = (1 + real return) × (1 + inflation) − 1

The rates compound together, so the nominal return is not calculated by simply adding the real return and inflation.

Example: a $1 million portfolio

Assume:

• Beginning portfolio balance: $1,000,000
• Expected real return: 5.8%
• Inflation assumption: 2.19%
• No contributions, withdrawals, transfers, or other cash flows

The corresponding nominal return is:

(1 + 5.8%) × (1 + 2.19%) − 1 = approximately 8.12%

If Life Hub is displaying future dollars, the estimated balance after one complete year would be approximately:

$1,000,000 × 1.0812 = $1,081,200

Although the portfolio’s purchasing power increased by an estimated 5.8%, its future-dollar balance increased by approximately 8.12%. The difference reflects inflation—not additional real purchasing power. If the same projection were viewed in today’s dollars, inflation would be removed from the displayed values, and the growth would more closely reflect the 5.8% real return.

How Income Lab calculates the portfolio’s expected return

A household may have multiple investment accounts, asset classes, and return assumptions. Income Lab calculates the portfolio’s expected return using a balance-weighted average of its underlying investments. This means larger accounts and asset allocations have a greater effect on the portfolio’s expected return than smaller ones.

For example, if most of a portfolio is invested in accounts with a higher expected real return and a smaller portion is invested in an account with a lower return, the portfolio’s average return will fall between those rates. It will be closer to the return of the investments holding the larger share of the portfolio.

The expected return displayed in Income Lab may be rounded for presentation, while the projection uses the underlying assumptions. Small differences may appear when you try to reproduce the calculation using only the rounded rate shown on the screen.

Why the balance may not match a compound-interest calculator

A compound-interest calculator generally assumes:

• A single beginning balance
• One fixed growth rate
• A complete year of growth
• No money entering or leaving the account

Life Hub models more than investment growth. Depending on the plan, projected balances may also reflect:

• Contributions and planned savings
• Portfolio withdrawals
• Transfers and Roth conversions
• Required minimum distributions
• Reinvested income
• Taxes
• Account-specific distribution settings
• Other modeled cash flows

Because of this activity, the percentage change between two displayed balances should not automatically be interpreted as the portfolio’s investment return.
A balance can grow by more than the assumed return because money was added, or by less because withdrawals, taxes, or transfers occurred.

Partial-year projections

The first interval displayed in Life Hub may represent less than a complete calendar year.

For example, if a plan begins late in the year, the next January balance may reflect only a few months of growth. Applying the full annual return to that initial period would produce a different result.

Subsequent January-to-January balances may represent complete years, provided no other cash flows occur.

Today’s dollars versus future dollars

The selected view changes how inflation appears in the displayed values.

Today’s dollars

Today’s-dollar values remove inflation from the display. This view is useful when comparing future purchasing power with what the same amount could purchase today.

Future dollars

Future-dollar values include inflation. This view more closely represents the dollar amounts that could appear on future account statements if the plan’s assumptions occur.

Switching between these views changes how the results are presented; it does not create a different underlying financial plan.

How to review an unexpected balance

If a projected balance does not match a manual calculation, check the following:

1. Confirm whether Life Hub is displaying today’s dollars or future dollars.
2. Confirm whether the return being reviewed is real or nominal.
3. Review the plan’s inflation assumption.
4. Determine whether the period represents a complete or partial year.
5. Review contributions, withdrawals, transfers, conversions, and RMDs.
6. Confirm the account’s asset allocation and applicable fees.
7. Remember that displayed return assumptions may be rounded.
8. Review Other Assets separately because they may use their own growth assumptions and are not necessarily projected using the investment portfolio’s average return.

Summary

Income Lab displays expected investment returns as real, net-of-inflation returns. When Life Hub displays balances in future dollars, it incorporates inflation into the projection, producing nominal growth.

The projected balance may also include cash flows occurring throughout the plan. For this reason, Life Hub should not be expected to produce the same result as a simple compound-interest calculator unless the return basis, inflation treatment, projection period, and cash flows align.