The Effect of Monthly Returns and Fees

All portfolio return calculations in the Income Lab application are monthly, not annual. Therefore, although you may see a capital market assumption of a 10% average annual return or an account with a 10% expected average return, in fact the software interprets that as a 0.8% monthly return.

(1 + 0.8%) ^ 12 - 1 = 10%

Investment fees and AUM fees are applied to these monthly returns. So, if a plan includes a 1% fee on investments, these monthly returns are reduced by 1% / 12. In this case, that 0.8% monthly return would be reduced to 0.713% and the annualized net return would be lower.

(1 + 0.713%) ^ 12 - 1 = 8.9%

Notice that this net-of-fee return is not 10% - 1% = 9%, but is a bit lower. That's due to the monthly compounding effect of the fee applied.