Methodology, Assumptions & Limitations

The information generated by The Personal Retirement Number (PRN) Calculator has been developed by Merrill Lynch Global Wealth Management Investment Management & Guidance to estimate how current savings and estimated future contributions may help to meet estimated financial needs in retirement. The PRN Calculator does not take into account a number of important factors that materially impact both what you should save for retirement and which investments may be best for you, including your tax bracket and expected tax payments, other investments or insurance coverage you currently hold or large expenses you and your family may have both now and in the future, such as educational expenses, alimony, long-term care and health care costs.

Simple questions about your specific circumstances are used to obtain information in order to generate a hypothetical scenario and analyze how it could potentially perform over time. The output of the PRN Calculator is highly dependent upon the accuracy and completeness of your input. The figures entered on the input page of the PRN Calculator are for hypothetical purposes only. You should enter figures that reflect your individual situation. The results provided by the PRN Calculator are also intended for illustrative purposes only and accuracy is not guaranteed. The PRN Calculator's assumptions are based on numerous factors that make the calculations uncertain, such as the use of assumptions about hypothetical returns and inflation as well as data you have provided. Bank of America nor the PRN Calculator can predict or guarantee future results.

The PRN Calculator's results are generated through the use of Monte Carlo simulation to determine the likelihood of levels of returns that a portfolio might experience under different market conditions. The Monte Carlo Analysis is a mathematical technique based on the statistics of probability, to estimate the likelihood that your assets may realize your target growth goal within the time frame indicated using hypothetical risk and return assumptions as well as inflation assumptions.

The PRN Calculator is designed to generate an estimated Personal Retirement Number and two scenarios: (i) if the market performs on average and (ii) if the market underperforms. Both numbers are rounded to the nearest $1000. Your Personal Retirement Number is defined as a simple estimate (excluding tax considerations, personal expense obligations and other factors) of the minimum assets you will need to have at your selected retirement age to replace 85% (or your selected percentage) of your pre-retirement income before taxes. "Market performs on average" is designed to estimate how the investment style and asset allocation suggested by the PRN Calculator based on your input might perform on average under the simulated market scenarios. This means that if you base your planning on average market conditions, your plan has the probability of generating sufficient income to replace 85% (or your selected percentage) of your pre-retirement income before taxes in 50% of the simulated scenarios. "Market underperforms" is designed to estimate how the investment style and asset allocation suggested by the PRN Calculator, based on your input might perform in the lowest 10% of the simulated market scenarios. This means if you meet your goal when the market underperforms, your plan has the probability of generating sufficient income to replace 85% (or your selected percentage) of your pre-retirement income before taxes in 90% of the simulated scenarios. If actual performance of the market deviates from the simulated scenarios, then the estimates provided by the PRN Calculator may be inaccurate.

These results are hypothetical estimates only. This is not and should not be considered to be a comprehensive financial plan.

We encourage you to consult with qualified professionals to discuss your particular situation, such as your tax bracket, expense obligations and your existing investments.

Methodology — How the PRN Calculator Works

The PRN Calculator assumes 2 stages of wealth management in your life: accumulation and distribution. It starts by gathering specific information directly from you: current age, desired retirement age, current retirement savings, individual annual income, monthly retirement contributions, and your investment style for the accumulation stage (which help the PRN Calculator to select an appropriate asset allocation and risk profile).

The PRN Calculator simulates 1000 market performance scenarios based on the results generated by your answers. The returns in each of the years for each of the scenarios are generated randomly by algorithmic analysis based on average returns and risk associated with the investment style during the accumulation phase. Every scenario uses the same accumulation period. In each scenario, each year, the portfolio return is generated randomly by algorithmic analysis based on statistical analysis that assumes a "normal distribution" whose mean is the average annual return of the portfolio and whose "standard deviation" is the annual risk of the portfolio. In each scenario, the initial investment amount and contributions are grown during the accumulation period using the generated portfolio returns. The annual contributions in future years are assumed to grow at the rate of inflation (based on the default amount of 2.5%) or at the income growth rate specified by the user. Normal distribution is a statistical term that means the results are based on a theoretical data distribution which is evenly distributed, centered on the average return of the simulations. The most probable results of the simulations tend to fall closer to the average return, with less probable returns either progressively higher or progressively lower than the average return. Standard deviation is a useful measure of the variability of return earned by an investment portfolio. In performance measurement, it is generally assumed that a larger degree of variability implies that greater risk was taken to achieve the return.

Before beginning the distribution stage, the PRN Calculator computes distribution values such as the amount estimated to be needed to fund your retirement based on 85% (or your selected percentage) of your pre-retirement income before taxes (Personal Retirement Number). The Personal Retirement Number uses the cost of a hypothetical annuity from a highly-rated, credit-worthy issuer with a discount rate (return) of 6%. The hypothetical annuity is an inflation-adjusted annual payment for the duration of the retirement. The assumed average rate of inflation is 2.5% (or your selected percentage) in any single year. This hypothetical instrument and value is highly correlated with interest rates and may become more or less costly as interest rates vary.

During the distribution stage, the PRN Calculator computes an estimate of the percentage of your pre-retirement income that you will be able to withdraw every year, beginning at your selected retirement year, to the age of 93 years old (or your selected age). This withdrawal amount is inflation-adjusted assuming a default rate of 2.5% (or your selected percentage). The withdrawal amount will be significantly higher if the assumptions are changed, in the case, for example, of a higher inflation rate.

Assumptions & Limitations

The PRN Calculator makes the following assumptions:

• All amounts are pre-tax
• Annual compounding
• The monthly investment is accumulated and invested at one time at the end of the year
• The annual investment is grown at the salary growth rate in subsequent years
• The accumulation period is computed from the current age until retirement age for simulation purposes (assuming no distributions or withdrawals and assuming that all earnings are reinvested)
• The standard deviation for the generation of portfolio returns is used as the annual risk of the portfolio
• Planning Horizon: the model assumes you will live to 93 years old unless you input a different number (Range 70-100 years old)
• Average Inflation: Defaults to 2.5% (Range 0-10%)
• Salary growth rate: Defaults to 2.5% annually (same as inflation rate, range 0-10%)
• Personal Retirement Number assumes replacement of 85% of your pre-retirement income before taxes (Defaults to 85%, the range is 50% - 130%)
• Does not assume pension or other retirement income
• Does not include Social Security benefits (unless you elect to include)
• Does not include real estate or real estate income
• Income is withdrawn once a year at the beginning of the year starting at retirement
• Does not include expenses, such as long-term care, health care costs, disability, education, alimony or other expenses post-retirement
• The determination for being "On Track" is when the total projected asset amount at the desired retirement age and during average market performance is greater than or equal to the Personal Retirement Number.
• Personal Retirement Number (PRN) is rounded to the nearest $1000

Model Portfolio Risk/Return

The model assumes that annual discrete returns are normally distributed. The discrete return is the appreciation/depreciation of the portfolio in any given year.

The hypothetical annual expected returns and standard deviations (hypothetical annual risk) are given in the table below (Exhibit 1) for each model portfolio.

The probabilistic analyses contained in this tool uses forward-looking rates of return developed by Merrill Lynch and are presented for information purposes only.

These are the hypothetical statistics used by the Monte-Carlo simulation engine to generate normally distributed returns in a given year under a given scenario. That is, the portfolio returns are normally distributed with the mean and standard deviations given in Exhibit 1.

The five model portfolios are constructed based on investment objectives and risk tolerances. The simulated portfolio risk and return figures in Exhibit 1 represent assumptions and hence should not be viewed as predictions or guarantees of future performance.

Personal Retirement Number

The Personal Retirement Number is defined as an estimate (rounded to the nearest $1000), based on your input, of the assets needed at retirement to replace 85% (or selected percentage) of your pre-retirement income that keeps pace with inflation before taxes for the duration of your planning horizon which is assumed to be age 93 for all users unless a different age is specified.

The Personal Retirement Number or retirement goal is based on purchasing a hypothetical annuity with a discount rate (return) of 6% which will last through retirement. The need for retirement income is assumed to last through the user's projected planning horizon which is assumed to be age 93 for all users unless a different age is specified.

The user's current annual income is assumed to grow until retirement age at the salary rate (current default is 2.5% annually) and the inflation rate (current default is 2.5%), both of which can be adjusted. 85% (or your selected percentage) of the pre-retirement annual income, adjusted for inflation, is then used as the amount needed during retirement.

Social Security

A full retirement age of 67 is assumed for Social Security benefits even if a different retirement age is specified.

Current income is projected into the future using an inflation rate of 2.5% (or your selected percentage).

Past income is computed using the Social Security Administration's (SSA) recommended wage growth factor of 6.6%.

SSA benefits are only computed for the first year of retirement. Since this amount reduces the annual retirement income needed while computing the retirement goal, it is assumed that benefits grow at the same rate as inflation.

Projected Asset Shortfall

"Current asset shortfall projected beginning between ages of: x-y." This projects the age range at which you will run out of retirement funds based on your projected withdrawal schedule given your current progress under average market conditions and when the market underperforms. Default withdrawal schedule is set to replace 85% (or your selected percentage) of your estimated pre-retirement income (PRI) before taxes.

Action Plan - Increase Your Monthly Contributions

Increase your monthly contributions to a retirement account. Right now, you are potentially on track to have between $361,000 and $785,000 depending on market performance at your desired retirement age based on your selections. The chart below shows how an increase in your monthly contributions now can help you move towards your Personal Retirement Number ($2,851,000).

Current Monthly Contributions - $100

Additional Monthly Contributions - $890- $1,890 (rounded to the nearest $10)

This is calculated by taking the gap between your current progress towards your Personal Retirement Number ($361,000 and $785,000) when the market underperforms and when the market performs on average and calculating how much you would need to save additionally every month to bridge that gap by your desired retirement age. This is calculated using the Monte Carlo simulation method (see paragraphs 2 through 4) used to calculate your current projected balances of $361,000 and $785,000.

Results - Can result in an additional $2,066,000 - $2,490,000 (rounded to the nearest $1000) at retirement depending on market performance.

These numbers are calculated by subtracting your current progress when the market performs on average and when the market underperforms from your Personal Retirement Number.

No Guarantee of Results

Because the results of the tool's assumptions are based on numerous factors that make the calculations uncertain and because the tool does not take into consideration a number of important factors, whether you are deemed to have an "Asset Shortfall" or to be "On Track" to reach your Personal Retirement Number, neither Bank of America nor this tool can guarantee that you will have sufficient income or assets to meet your financial needs throughout retirement.