Assumptions and Methodologies

Customer Goals

LINK by Prudential uses proprietary and third-party tools to generate illustrative goals based on each user's inputs. Goals help users plan for future expenditures in their lives. Each goal is an estimate of what an expense will be at some time in the future but may be customized to a user’s specific situation for a more accurate cost forecast. To generate each goal, we consider a user’s inputs such as age, savings, household size, income, etc. Nine standard goals — Emergency Fund, Retirement, Education, Family Protection, General Investment, Home, Wedding, Car and Baby — are available to users, along with a “Custom” goal that users can tailor to their specific objectives.

This information is not intended to be comprehensive, and third-party data are subject to change. An investor’s needs may be influenced by a variety of factors not included in this analysis, including taxes. You should consult with your advisor to help evaluate your needs and consider the information provided by LINK.


Emergency Fund Goal

The Emergency Fund goal intends for customers to set aside funds for unplanned needs, for example, in the event of loss of income or large, unexpected expenses. The need is a function of the number of months of expenses the user wishes to have saved.


Retirement Goal

The Retirement goal intends to estimate the future cost of a user’s retirement. The goal amount is a function of the user’s desired U.S. city for retirement and the expected average cost of essential items in the city; i.e., entertainment, healthcare, food, travel, housing, inflation and choice of lifestyle.

Key Assumptions:

• Overall Consumer Inflation = 3%

• Housing = 2 people

• The “I’ll Need” number is the user’s estimated annual expenses multiplied by their time “in” retirement, or actuarial mortality age minus planned retirement age.


Education Goal

This Education goal intends to estimate the cost of a college fund. The expected cost of education can be based on the published cost of tuition for a specific U.S. college or university over four years or a general average cost for a four-year program. In the latter case, users can select between in- and out-of-state institutions, and private and public institutions.

Key Assumption:

• Education Cost Inflation = 5%


Family Protection Goal

The Family Protection goal intends to cover the cost of maintaining the user’s family’s lifestyle in case of the user’s untimely death. 

“I’ll need” represents the amount needed to replace the user’s stated individual income and help cover remaining household expenses. 

This amount is reduced by the user’s total assets, which are assumed to grow at a fixed rate over time. 

The user’s final (funeral) expenses and any projected Education costs (for minor dependents) also factor into the user’s “need.” 

We will automatically create the goal for users who are married and/or have children under age 21. A user also can add this goal manually. 

Key Assumptions: 

  • Overall consumer inflation = 3% 
  • College cost inflation = 5.6% 
  • Funeral cost = $8,508 

Annualized rate of return on investments = 6% after tax. Note that all assets a user has entered into the calculator are assumed to grow at this rate. Unlike our other goals, which use a Monte Carlo simulation to simulate the potential growth of assets over time (see below), the life insurance calculator uses a fixed growth rate.


Home Goal

The Home goal intends to fund the down payment to cover a user’s home purchase. Users can enter the city they plan to buy a house, and we use a third-party source to give users the median home value in that location. Users can use that provided average cost (when available) or enter their own value.

After users purchase the home, they should update their debt balance, if applicable, within their profile, which will update their Family Protection goal.


Baby Goal

The Baby goal intends to estimate the first-year cost of a new baby. Based upon a user’s income level and relationship status, we provide the national average first-year cost of raising a baby.

If the new baby is the user’s dependent, users should update their dependents on their Profile, which will create a new College Education goal and update their Family Protection goal.


Wedding Goal

The Wedding Goal intends to estimate the cost of a wedding. Based upon a user’s desired wedding location and anticipated number of guests, we use a third-party resource to provide the average cost within those parameters. Users can use that provided average cost or enter their own value.


Car Goal

The Car goal intends to fund the purchase of a car. Users can enter how much they plan to spend on this purchase.

If users borrow money to purchase a car, they should update their debt balance within their profile, which will update their Family Protection goal.


General Investment Goal

The General Investment goal intends to assist users in building wealth. Users can enter a target savings amount; we will track their progress toward that goal over the specified time horizon.


Custom Goal

Custom goals intend to fund financial objectives that are unique to the user. The goal amount is adjusted for inflation.

Key Assumption:

• Overall Consumer Inflation = 3%


Note: Third-party information may be subject to technical limitations.


Monte Carlo Simulation

IMPORTANT: The projections and other information generated by this financial analysis tool regarding likelihood of various investment outcomes are hypothetical, do not reflect actual investment results and do not guarantee future results.

The main goal of Prudential’s financial analysis is to educate users regarding the likelihood of how their current savings and financial contributions could potentially perform given various assumptions based on Prudential’s understanding of the global macro economy, financial markets and certain laws and regulations.

The numbers represented in the “I'll Probably Have” section are generated using Monte Carlo simulation. Monte Carlo Simulation is a computerized mathematical technique that furnishes the decision-maker with a range of possible outcomes and the probabilities they will occur for any choice of action. Results vary with each use and over time. The simulations are based on the expected returns and standard deviations of each Prudential Management Account (PMA) portfolio. Asset classes not in the portfolios may have characteristics similar or superior, and possibly simulate greater returns, than those used for the simulation. Simulations do not guarantee investment performance. Expected returns and standard deviations do not guarantee future performance and, hence, these numbers should not be treated as investment, tax or legal recommendations or advice.


How do you estimate what "I’ll Probably Have"?

It's not a guarantee, it's really all about probability: For investing goals, we use "Monte Carlo simulation," a computerized technique that simulates thousands of possible investment outcomes and the probabilities that they will occur in virtually any scenario. We run these simulations when you log in to your account, when you make certain changes to your goal or profile and when you change your initial investment amount or contributions; results vary with each use and over time. "I’ll Probably Have" is an estimate of the assets you may have when you reach the target year you set for your goal.

How does it work?

Monte Carlo simulation considers:

  • Your "time horizon," based on the year you aim to complete each goal.
  • The current savings you have, and contributions you're making, toward each goal.
  • An assumed annual rate of return for the Prudential Managed Account (PMA) portfolio we've matched for your goal and our capital market assumptions, which help determine how each portfolio invests over time (but which aren't guaranteed). 

“I’ll Probably Have” estimates how much money (and the corresponding percentage of your goal) our models simulate you’ll have at the end of your goal period with 50% confidence. In other words, each time we run the simulation, the “I’ll Probably Have” figure has been reached or exceeded 5 out of 10 times. This is meant to estimate how your account will perform in an average market environment. If the market experiences below average performance, your outcome will likely be worse than our estimate, while if the market experiences better than average performance, you may outperform our estimate. Because we use a 50% confidence level in calculating "I’ll Probably Have", these two scenarios (under- and over-performance) are equally likely.

Unlike actual portfolio outcomes, Monte Carlo simulations don't reflect real trading, liquidity constraints, fees, expenses, taxes and other factors that could impact future returns. Markets may perform better or worse than expected, especially when considering the thousands of possible economic and financial scenarios we simulate.

IMPORTANT: The projections and other information regarding likelihood of various investment outcomes are hypothetical, do not reflect actual investment results and do not guarantee future results.