Quick ALM Builder
How This Tool Works: Your future spending is a liability and your asset allocation reflects an inherent asset-liability mismatch across time. Matching assets to liabilities (asset liability matching, or ALM) can help close that gap, improve predictability of outcomes and reduce behavioral biases. This ALM Builder is a purely liability driven tool that builds the allocation entirely from the liability needs instead of the traditional active investing approach of style and factor optimization. The builder prices that liability at today's TIPS real yields, sorts it into four Defined Duration time buckets, and shows whether your portfolio can fully fund those liabilities. A funded ratio above 100% means the plan works at risk-free real rates and the surplus is the budget for risk taking in equities. Below 100% means the plan is relying on market returns to close the gap, and the tool shows how much.
You can alter the timeline of income and expenses and refine how precise you want the asset match to be by choosing between three options: Contractual ALM, Blended ALM and Statistical ALM. Contractual ALM is bonds only and matches precisely to real outcomes using TIPS. Statistical ALM is probability weighted and matches assets such as equities using probabilistic outcomes. Blended is the best of both worlds where short-term liabilities are contractually matched and long-term liabilities are statistically matched.
How this allocation was built
Asset allocation
Where today's portfolio sits across the four time horizons. If the liability match leaves a bucket empty or below 10%, a dashed outline shows the 10% minimum we recommend holding in every bucket.
Spending liability by year
Net spending in today's dollars. Income offsets are shown in gray, one-time expenses in teal, and years where income exceeds spending show as light green net savings. Blank end year means the income runs to the end of the plan. Hover a bar for detail.
Glide path
How the target allocation should migrate as time passes and liabilities move down the ladder. Each row re-runs the plan from that year forward in today's dollars, with the portfolio adjusted for the savings and spending in between and assumed to earn only the TIPS rate. Any equity return on the surplus would raise the funded ratio above what is shown.
Show the math
Every number above comes from this table. Pick any year and check it by hand.
Important Notes About This Tool
- Each year's net spending (expenses minus income, plus any one-time expense) is discounted at the TIPS real yield for that maturity. Years under five use the five year rate. Other years are interpolated between published points. In years where income exceeds spending, the difference is treated as a future contribution, discounted the same way, and added to the asset side. One-time inflows work the same way.
- Bucket allocations are shares of today's portfolio. Future savings and one-time inflows count toward the funded ratio, and they pay for the spending that comes after them before today's portfolio is asked to. Each bucket shows how much of its spending is paid that way, and the savings routing section shows which bucket each year's savings should go to. The income insurance reserve is added to the 0 to 3 year bucket on top of any liability there.
- The four buckets follow the Defined Duration framework. Buckets 1 through 3 are sized to their present value. In blended and statistical mode the 15 year and beyond bucket receives the rest of the portfolio, which covers its own liability plus any surplus.
- Contractual: each year of spending is funded with an individual TIPS maturing in that year, so the principal arrives in real dollars exactly when it is needed. Surplus is left unallocated. This is the price of certainty. Where no TIPS matures in a given year the ladder uses the nearest available maturity, and TIPS held in taxable accounts generate taxable phantom income.
- Blended: the liability is still priced at TIPS. The near buckets combine individual bonds that mature in the years they are needed with ETFs that do not mature but carry a matching duration. The long bucket holds multi-asset and equity ETFs, and the surplus is deployed there as equity.
- Statistical: ETFs only, with no individual bonds anywhere in the plan. Each bucket is discounted at TIPS plus its equity weight times the equity risk premium. This is how most planning software works. It raises the funded ratio, but nothing matures on schedule and the answer depends on the return assumption, so the contractual ratio is always shown alongside it.
- Surplus is the amount not needed to fund spending at the chosen discount rates. A shortfall is shown as the extra annual real return the long bucket would need to earn on top of its assumed return to close the gap.
- Taxes: spending that the portfolio funds from tax-deferred accounts is grossed up at the rate entered, so the liability reflects pre-tax withdrawals. The tool does not model withdrawal order, capital gains on taxable accounts, or Roth conversions.
- We recommend holding at least 10% in every bucket to reduce sequence risk, the risk of having to sell assets after a market decline to fund spending. A minimum in each bucket keeps the ladder intact so liabilities can move down it over time without selling long-dated assets at the wrong time. When a bucket has spending to fund and holds less than 10%, it is flagged. When the liability match leaves a bucket empty or below 10%, the top-up to 10% is shown as an optional, recommended allocation, funded first from any unallocated surplus and then from the longest bucket with room to spare. The pie chart can show the mix either way.
- The glide path re-runs the plan from future years with the portfolio adjusted for savings and spending and assumed to earn the TIPS rate, in today's dollars. It shows how the allocation should migrate, not a forecast of wealth.
- This is a planning illustration, not advice. It does not account for fees or for tax rules beyond the flat withdrawal gross-up.