Bogleheads® Chapter Series – Pralana Retirement Calculator

00:00:00.000 | [MUSIC PLAYING]

00:00:04.720 | Welcome to the Bogleheads Chapter Series.

00:00:07.720 | This episode was hosted by the Chicago Virtual Chapter

00:00:10.800 | and recorded March 18, 2021.

00:00:13.800 | It features Stuart Matthews, the designer and developer

00:00:16.560 | of the Prolano Retirement Calculator.

00:00:19.520 | Bogleheads are investors who follow

00:00:21.120 | John Bogle's investing philosophy for attaining

00:00:23.520 | financial independence.

00:00:25.680 | This recording is for informational purposes only

00:00:28.280 | and should not be construed as investment advice.

00:00:30.640 | This is one of the user worksheets

00:00:37.960 | that's just part of the Prolano gold calculator.

00:00:41.320 | And in it, I've just entered a summary of this scenario

00:00:44.120 | that I've built. So let me quickly step through this

00:00:46.160 | so you'll have some idea of where I'm

00:00:48.240 | going with this demonstration.

00:00:49.920 | This is just one example.

00:00:51.200 | It's not a trivial one, but it can do far more complicated

00:00:54.720 | things than this.

00:00:55.840 | So just take it from the top.

00:00:58.120 | The demographics, we're talking about a married couple whose

00:01:00.400 | ages are 57 and 55.

00:01:02.400 | They currently live in Maryland, and they

00:01:04.200 | plan to relocate to Texas whenever they

00:01:06.240 | retire in several years.

00:01:08.280 | The general inflation rate assumed

00:01:10.440 | is 3% with health care expenses inflating at 2% above that.

00:01:16.400 | As far as the federal--

00:01:18.240 | the calculator does detail federal and state tax

00:01:21.280 | calculations.

00:01:22.160 | So the federal tax law assumed is currently

00:01:25.520 | the Tax Cut and Job Act of 2017 up until its sunset year

00:01:30.680 | of 2026, at which time it reverts back

00:01:33.120 | to the pre-TCJA of 2017 laws, with the tax

00:01:39.600 | that was corrected for that year, 2026.

00:01:43.520 | The initial balances of the accounts in question

00:01:46.400 | here are 525K in the husband's tax deferred accounts,

00:01:50.560 | 150K in the wife's tax deferred accounts,

00:01:53.920 | 225K in regular investment accounts

00:01:56.640 | with a cost basis of 170K.

00:01:59.400 | They have 10K in checking and savings accounts,

00:02:02.760 | and 50K in a 529 plan for their children's education.

00:02:06.960 | As far as their portfolio is concerned,

00:02:09.000 | they have asset classes of money markets, stocks, and bonds

00:02:12.800 | with real rates of return of minus 2%, 5%, and 2.5%

00:02:18.600 | respectively.

00:02:20.200 | And then the allocations for these accounts

00:02:22.600 | are all the same.

00:02:23.360 | They're 60% stocks and 40% bonds until the retirement date,

00:02:28.120 | after which they get a little bit more conservative

00:02:30.360 | and go with 10% money market, 40% stocks, and 50% bonds

00:02:35.080 | throughout their retirement years.

00:02:37.680 | As far as income is concerned, he earns 150K currently,

00:02:44.680 | increasing at 3% a year, which is at the inflation rate,

00:02:47.560 | until his retirement date, which will be May 1st of 2024.

00:02:51.640 | During this time, he'll be making personal contributions

00:02:54.240 | to his 401K of 12.5K with a company match of 6,250.

00:03:00.200 | She'll be earning 40K, increasing 3% a year

00:03:03.760 | until her retirement date, which is the same as her husband's.

00:03:06.800 | She'll be making $4,000 contribution to her 401K

00:03:11.960 | with no company match.

00:03:14.160 | When he retires, he'll have a part-time job

00:03:19.040 | until he turns 67.

00:03:21.680 | And he'll be self-employed in this job.

00:03:24.360 | And he'll earn 10K a year, increasing at 3% per year.

00:03:30.800 | Also, at the time of his retirement,

00:03:32.520 | he'll receive a $50,000 fixed pension,

00:03:35.320 | which is to say it doesn't have any COLA associated with it.

00:03:38.320 | It begins on his retirement date.

00:03:40.280 | And he will have a 50% survivor option

00:03:43.080 | should he die before his wife.

00:03:46.200 | In terms of Social Security benefits,

00:03:48.600 | he'll earn $30,000 a year at his full retirement age of 67.

00:03:53.840 | And she'll earn $222,000 per year

00:03:57.720 | at her full retirement age, which is also 67.

00:04:01.640 | However, he'll be delaying his benefits until he reaches 70.

00:04:05.080 | But she'll go ahead and start hers at 67.

00:04:08.200 | In 2030, they anticipate an inheritance

00:04:11.040 | of 100K in a brokerage account from his parents,

00:04:13.760 | as well as his dad's $50,000 IRA.

00:04:16.960 | And then she'll do some part-time work.

00:04:18.600 | They'll hobby and earn $2,500 a year from age 55 to 60,

00:04:22.920 | which will be taxed as ordinary income.

00:04:25.720 | In terms of expenses, they currently

00:04:27.880 | own a home, which they're still paying for.

00:04:29.720 | And they'll be downsizing at the time of their retirement.

00:04:33.320 | So they purchased this home in 2010 for 300K.

00:04:37.640 | It's now appreciated up to 400K.

00:04:40.640 | They still have an outstanding mortgage

00:04:43.320 | at $79,500 at 4.5%, a monthly payment of $13.38.

00:04:48.880 | They do have property taxes, insurance, maintenance,

00:04:52.480 | and utilities, which add up to about $15,100.

00:04:56.720 | They'll be selling that house when they retire.

00:04:58.960 | And downsizing for a house that is worth $300,000

00:05:02.720 | in today's dollars.

00:05:03.600 | And then they'll leave it in there thereafter.

00:05:05.680 | And its operating cost will be $13.9K.

00:05:09.840 | They have two cars currently.

00:05:11.360 | And they generally plan to replace them every 10 years.

00:05:15.320 | They've got two children, which are

00:05:17.840 | about to start a four-year tour of duty in college, which

00:05:22.120 | costs $25,000 per year each.

00:05:25.480 | And the first of those will be paid for by a 529 plan.

00:05:28.840 | The other would be paid on the fly.

00:05:32.200 | Health care costs are being modeled here.

00:05:34.600 | And they will be varying substantially

00:05:37.400 | as they transition from their working years

00:05:39.320 | into their Medicare years.

00:05:41.040 | They'll start at $3,000 a year while they're both still

00:05:44.960 | working through a group insurance plan.

00:05:47.480 | But that will peak up substantially higher

00:05:50.360 | when they retire.

00:05:51.440 | And they'll go on to Obamacare.

00:05:53.440 | And their premium will be $15,000 a year

00:05:59.360 | prior to any subsidy.

00:06:00.440 | And we'll talk about that a little bit more

00:06:02.240 | when we get to it.

00:06:03.680 | And then eventually, this will taper off

00:06:06.760 | as they both go on to Medicare.

00:06:08.640 | And I'll show you how that works.

00:06:10.480 | Their discretionary expenses will be $25,000.

00:06:14.280 | And in today's dollars, during their working years,

00:06:17.120 | and it'll go up to $35,000 in their early retirement years

00:06:20.800 | as they do a substantial amount of traveling.

00:06:24.160 | And then it'll drop off to $22,700 in late retirement.

00:06:27.880 | Now, should one of them die early,

00:06:30.720 | these expenses will be cut by 40% upon that death.

00:06:35.320 | They also intend some one-off expenses

00:06:38.200 | to fund the marriage of their children.

00:06:40.120 | They're anticipating $15,000 in today's dollars

00:06:42.360 | for their son in 2027, $25,000 for their daughter in 2030.

00:06:49.360 | Finally, they have a charitable contribution

00:06:51.640 | of $10,000, which will become a qualified charitable

00:06:54.920 | distribution when he reaches age 70.

00:06:58.720 | So what I want to do here is just

00:07:00.160 | model, show you how this is modeled in Perlina Gold,

00:07:02.840 | then do a baseline analysis of the probability

00:07:05.680 | of this couple reaching the end of their expected lifespans

00:07:09.920 | without running out of money.

00:07:11.320 | Then we'll do some other things.

00:07:12.680 | We'll do a quick bear market analysis on their plan.

00:07:16.840 | We'll do a Roth conversion at some point.

00:07:20.240 | We'll show you how they can optimize their Social Security

00:07:23.080 | start ages.

00:07:23.840 | I'll tell you what ages they plan,

00:07:25.440 | but there might be better dates.

00:07:26.760 | We'll take a look at that.

00:07:28.120 | Then we'll look at the sensitivity of their plan

00:07:30.680 | to changes in key variables, like rates of return, inflation,

00:07:35.800 | et cetera.

00:07:36.640 | Then we'll do a couple of what if scenarios,

00:07:39.680 | like an early death, loss of the pension.

00:07:42.080 | And then finally, we'll just look

00:07:43.880 | at how the tool can deal with alternate spending strategies.

00:07:47.560 | What I did here was show you specifically

00:07:50.040 | what they plan to do, but there's

00:07:51.600 | other ways the tool can do spending strategies as well.

00:07:55.920 | So with that as the scenario that I

00:07:57.760 | wanted to show you how we model, I'm

00:07:59.220 | going to jump over to the calculator itself.

00:08:03.340 | And I just took a shortcut, and here it is.

00:08:06.160 | This is the home page.

00:08:08.280 | So the calculator, again, as I said,

00:08:10.440 | does not take you by the hand and walk you through.

00:08:12.560 | You have to think your way through this thing,

00:08:14.920 | but it's organized logically, and it's

00:08:18.560 | broken down functionally.

00:08:19.880 | And you navigate among those functions

00:08:22.480 | by this navigation bar at the top of the page.

00:08:26.720 | So the home, financial assets, income, and expenses functions

00:08:32.300 | are primarily input functions.

00:08:35.740 | And then the tabular projections,

00:08:37.980 | graphical projections, and reports

00:08:40.900 | are primarily output functions.

00:08:43.780 | And then the analysis function is a combination.

00:08:46.380 | It's got some inputs, and it's got some outputs.

00:08:48.580 | And that's where we're going to find the Monte Carlo

00:08:52.060 | analysis and the historical analysis.

00:08:55.260 | Social security, start age optimization, Roth conversions,

00:09:00.120 | and other things.

00:09:01.640 | So we're going to just start off on it.

00:09:03.300 | It's going to walk through this thing left to right,

00:09:05.960 | starting with the home page and walk

00:09:07.440 | through these various functions to show you

00:09:09.680 | how the scenario that I just described is input here.

00:09:13.960 | So again, I said this is Excel.

00:09:17.400 | You can see the Excel menus at the top,

00:09:19.520 | and it's basically table-oriented.

00:09:22.200 | But it's designed such that we don't

00:09:24.060 | need any of these Excel menus at the top,

00:09:26.340 | so I'm going to get rid of them by clicking this link right

00:09:30.060 | here.

00:09:30.560 | It says hide those Excel menus.

00:09:32.160 | Boom, they're gone.

00:09:33.700 | OK, we don't need them.

00:09:35.340 | OK, so we're talking about a married couple here.

00:09:39.740 | So this is a toggle button.

00:09:42.020 | If they were single, if Joe was single, we just click that.

00:09:45.620 | And if Joe, he's single, it would gray out the boxes

00:09:48.900 | associated with his wife.

00:09:50.100 | But right now, we're going to bring Jane back.

00:09:52.200 | So you see the names are Joe and Jane.

00:09:54.120 | These are their birthdates.

00:09:56.200 | And then the tool calculates their age

00:09:59.240 | based on this birthdate.

00:10:01.040 | This is their age on January 1 of 2021, which is the year we're

00:10:05.560 | going to begin this model.

00:10:09.120 | So basically, this page is collecting

00:10:10.960 | some very fundamental assumptions,

00:10:12.600 | such as their life expectancies and then

00:10:15.840 | their assumptions relative to inflation and taxes.

00:10:20.260 | And I didn't mention up front, but the two models,

00:10:23.500 | three independent, at least large,

00:10:26.020 | mostly independent scenarios simultaneously.

00:10:29.220 | And you'll see most of the pages that we're

00:10:31.220 | going to walk through have the inputs

00:10:35.060 | for that function for that scenario listed side by side.

00:10:39.180 | So this part of the table here are

00:10:41.980 | the inputs for scenario one.

00:10:44.940 | These are the inputs for scenario two.

00:10:46.980 | And these are the inputs for scenario three.

00:10:50.860 | So for a given scenario, the tool

00:10:54.620 | has to collect inputs across all of these functions.

00:10:57.080 | We need to give it these basic assumptions.

00:10:59.020 | We need to talk about the financial assets, the income,

00:11:02.020 | and the expenses.

00:11:02.940 | So each page contributes some part of a given scenario.

00:11:07.420 | Again, they're free.

00:11:08.700 | And you can name them down here at the bottom.

00:11:11.820 | So this is a short name.

00:11:13.500 | And whatever these short names are, it appears here.

00:11:16.620 | And you'll see that repeated on most of the other pages.

00:11:19.980 | You can put a longer description of each scenario

00:11:22.940 | here just for your own reference.

00:11:25.100 | Now, I did say up on the--

00:11:27.060 | when I was defining the scenario,

00:11:28.860 | the tax law, in effect, is the Tax Cut and Job Act of 2017.

00:11:34.780 | So and that is going to revert back

00:11:37.860 | to the prior law in the year listed here.

00:11:41.460 | So it's 2026.

00:11:43.260 | But if you think that's not going to happen,

00:11:45.060 | you can change it to whatever date you want it to be.

00:11:47.260 | You can delete it.

00:11:48.140 | And then the TCJA of 2017 will go on forever.

00:11:53.100 | OK, so that is basically what we do on the home page.

00:11:57.300 | And so then I'm going to move on to the next page, which

00:11:59.820 | has to do with financial assets.

00:12:02.020 | And here, you're going to see that there

00:12:04.740 | are some additional pages which fall under financial assets.

00:12:10.980 | Initial balances, management, asset classes, and so on.

00:12:16.780 | So the first-- and I'm just going to walk through them.

00:12:19.220 | I'm not going to do all of these.

00:12:20.580 | I'm going to hit the ones that are

00:12:21.980 | pertinent to our example here.

00:12:23.980 | These are the initial account balances.

00:12:26.340 | So the items in gray are the account types

00:12:32.020 | that Prolano Gold models.

00:12:33.940 | So there are the tax deferred accounts for Joe, for his wife,

00:12:40.860 | then his joint Roth accounts.

00:12:42.500 | They're treated as joint by the calculator.

00:12:45.100 | Regular investment accounts, inherited accounts,

00:12:48.740 | and they can be traditional and Roth for husband and wife.

00:12:53.740 | And then your cash accounts, such as your checking

00:12:56.180 | and savings accounts, qualified tuition plans, 529 plans,

00:13:00.660 | and then health savings accounts.

00:13:02.620 | So these are the entities that are modeled by the tool,

00:13:07.820 | the ones that I'm selecting here.

00:13:10.260 | But each of them here contains additional sub-accounts

00:13:15.180 | that you can enter here.

00:13:17.300 | And these are strictly here to help you

00:13:19.740 | enter in your initial balances.

00:13:21.740 | It does not actually model these sub-level accounts.

00:13:25.380 | It only models the total account here.

00:13:28.580 | But initially, I said the--

00:13:30.740 | so here is the 425K in Joe's account.

00:13:37.700 | There's 100K in his wife's account.

00:13:40.220 | 225K in the regular investment accounts, of which there is a--

00:13:47.340 | there is some cost basis here.

00:13:50.020 | So there is currently $55,000 of unrealized capital gains

00:13:55.420 | as part of this 225K in these accounts.

00:13:59.820 | There are no inherited accounts as of the start of the model.

00:14:03.500 | And there's $10,000 in the checking and savings,

00:14:06.340 | and there's $50,000 in the 529 plan,

00:14:09.460 | for a total starting balance of $785,000.

00:14:14.100 | OK, I'm going to move now to the Management page.

00:14:17.060 | There are a number of things that can be done on this page.

00:14:21.300 | The one that I'm going to just focus on briefly

00:14:23.580 | is the Withdrawal Priority Table.

00:14:26.980 | Should we get into a situation where the couple bid model has

00:14:30.940 | a negative cash flow, we need to talk

00:14:33.220 | about the withdrawal priority.

00:14:34.500 | Where do we go to get the money to cover

00:14:36.300 | that negative cash flow?

00:14:37.620 | And that's what's done with this table.

00:14:41.020 | The choices are the regular investment accounts,

00:14:46.860 | the husband's tax-deferred account, the wife's

00:14:49.460 | tax-deferred account, and the Roth accounts.

00:14:52.860 | And those can be put in any order.

00:14:55.700 | So I think that there's 24 ways you can arrange that.

00:14:59.540 | And those are listed here in this pull-down menu.

00:15:02.020 | You can pick whichever one you want.

00:15:03.580 | I picked the first one.

00:15:04.820 | That's one that actually tends to be the best.

00:15:08.420 | And then you can pick a different withdrawal priority

00:15:10.980 | for each of the scenarios.

00:15:12.380 | This table does other things.

00:15:17.340 | You can see there are a number of things down below.

00:15:19.620 | But at this point in time, I don't

00:15:20.940 | think I want to go into those.

00:15:22.420 | I'm going to move on.

00:15:24.820 | The next thing is Asset Classes.

00:15:27.580 | So one thing that may separate the Perlina Calculator

00:15:31.780 | from other calculators, it doesn't simply

00:15:35.940 | ask you what rate of return you think you're

00:15:37.780 | going to get on a given account.

00:15:40.220 | It derives that from underlying asset classes

00:15:47.140 | and from an asset allocation per account.

00:15:50.540 | And on this page, we're talking about the asset classes.

00:15:53.860 | And it can be as simple as a single asset.

00:15:56.460 | If you really just want to say, I just

00:15:58.060 | want to specify my rate of return as 5% or 7%

00:16:02.140 | or whatever I want it to be, I can just say,

00:16:04.500 | I'm going to just use one asset.

00:16:06.380 | And I'm going to just, for the sake of this example,

00:16:08.540 | I said, I'm going to show you how we do that with scenario 3.

00:16:11.380 | And I'm just going to call it--

00:16:12.700 | I'm going to keep it simple.

00:16:13.860 | I'm going to keep it simple asset with a real rate

00:16:17.020 | of return of 3 and 1/2% and a standard deviation of 5%.

00:16:21.900 | But if you don't want to keep it quite that simple,

00:16:24.020 | you can do something else.

00:16:25.100 | But there are up to 10 asset classes that you could enter.

00:16:29.540 | I personally keep it simple with maybe two or three.

00:16:33.540 | This is kind of what I use.

00:16:35.340 | These are not necessarily my numbers,

00:16:36.880 | but these are the asset classes that I tend to use.

00:16:39.900 | And if you want to go from something complicated

00:16:41.940 | to just default, you can click this button here.

00:16:43.980 | And it will load this in as a default setting.

00:16:48.580 | So for this example, I've said the money market asset

00:16:52.020 | class for scenario 1 has a real rate of return of minus 2%.

00:16:57.620 | In other words, it's falling behind inflation,

00:17:00.860 | but has a very small standard deviation.

00:17:03.820 | So it's very consistent.

00:17:05.700 | For the stocks, I've said a real rate of return of 5%

00:17:08.860 | with a 20% standard deviation.

00:17:11.140 | And bonds, real rate of return of 2 and 1/2%

00:17:14.900 | with a 7 and 1/2% standard deviation.

00:17:19.300 | And all of these are the three scenarios

00:17:23.620 | use the same assets with the same assumptions

00:17:28.540 | about their rate of return and standard deviations.

00:17:32.580 | The 529 plan, it doesn't get into the--

00:17:35.820 | it's not as complicated as asset classes and asset allocation.

00:17:39.900 | For these, you do simply specify what is the rate of return

00:17:42.700 | you think you're going to get on your 529 plan investments

00:17:46.580 | and what rate and what standard deviation.

00:17:49.620 | So I mentioned earlier that the tool does fixed rate.

00:17:54.100 | I think I mentioned it does three types of analysis.

00:17:56.540 | One is the fixed rate analysis, where

00:17:59.540 | it just uses an average rate of return each year.

00:18:02.980 | And these are those average rates of return.

00:18:07.740 | But for Monte Carlo analysis, these

00:18:10.860 | are the arithmetic means.

00:18:14.380 | And these are the standard deviations,

00:18:16.380 | which are used to generate the random rate of return

00:18:19.700 | every year in that simulation.

00:18:23.180 | More on that later.

00:18:24.700 | OK, so I mentioned to get the rate of return

00:18:27.540 | for a given account type, we need two things.

00:18:33.060 | We need the rate of return, and we need the asset allocation.

00:18:36.500 | So I'm going to skip over to the asset allocation right here.

00:18:40.420 | This is a busy looking table, but it's not really

00:18:45.900 | that bad, but it is organized.

00:18:48.580 | These are the allocations for scenario one.

00:18:51.780 | These are for scenario two.

00:18:53.700 | These are for scenario three.

00:18:56.220 | And then these are the various accounts.

00:18:57.940 | There's a regular investment account,

00:18:59.980 | the tax deferred account for the husband, for the wife,

00:19:02.900 | and there's the Roth account.

00:19:05.300 | And then, so down below here, let's just say we're going--

00:19:09.980 | you can specify different allocations

00:19:12.540 | for up to five different periods in time.

00:19:16.540 | And in this example, I've used two different time periods,

00:19:19.460 | called period one, period two.

00:19:21.220 | Period one begins right now, 2021.

00:19:25.060 | Period two begins in 2027.

00:19:28.700 | You specify those years here, and then you come down here,

00:19:36.940 | and the asset classes that you input over here

00:19:41.900 | are replicated on this page, and they show up here.

00:19:44.860 | You cannot change them here.

00:19:46.660 | These are simply copied from the asset classes page.

00:19:49.620 | But here, you go in here and you say,

00:19:52.540 | these are my allocations of these asset classes

00:19:56.940 | for each of these accounts.

00:19:58.820 | And to make it simple on this example,

00:20:02.020 | I've used the same allocation for every one of them.

00:20:04.740 | And as I said earlier, during the first period of time,

00:20:08.780 | while the couple are still working,

00:20:10.780 | it's a little bit more aggressive

00:20:12.220 | than it will be later.

00:20:13.140 | So it's 60% stocks, 40% bonds.

00:20:16.180 | When they get retired, they'll invest

00:20:18.740 | 10% of each account in money markets, 40% stocks, 50% bonds.

00:20:25.620 | So now what the tool does is, based on the rates of return

00:20:28.540 | you put over here on this page, and this asset allocation here,

00:20:32.540 | it generates an aggregate rate of return,

00:20:36.500 | and that's a real rate of return.

00:20:38.460 | So for period one, it's 4%.

00:20:41.620 | For period two, it's 3.05%.

00:20:45.540 | It's a little bit more conservative.

00:20:48.020 | It's a little bit lower rate of return.

00:20:50.700 | And then here, these are the rates of return

00:20:54.460 | associated with the cash account, which

00:20:58.020 | would be your checking and savings accounts.

00:21:00.660 | So there are no assets associated with them.

00:21:02.980 | You just specify the rate of return directly.

00:21:06.260 | So I've done the same thing for scenario one.

00:21:09.220 | Scenario two are identical.

00:21:11.060 | The one I will show you, we'll deal with it a little bit

00:21:13.180 | later.

00:21:13.740 | Just for you, you just want to keep it simple.

00:21:15.220 | I don't want to deal with all these asset classes.

00:21:16.980 | I just want to tell you what my rate of return is going to be.

00:21:19.620 | Therefore, we use the Keep It Simple

00:21:22.300 | asset, which had a rate of return of 3.5%.

00:21:26.220 | So you come over here and say, I'm

00:21:27.580 | allocating 100% of this account to that asset.

00:21:31.060 | And therefore, the aggregate rate of return

00:21:33.980 | is 3.5%, just like you specified on the asset classes page.

00:21:39.660 | So that's how the tool derives the rate of return

00:21:43.500 | to apply to each of these accounts.

00:21:45.620 | And it uses that in the fixed rate and the money

00:21:51.740 | follow projections.

00:21:54.700 | OK.

00:21:55.700 | One other thing we need to talk about before we leave this,

00:21:58.340 | the financial assets area, is the asset class taxation.

00:22:04.100 | And this pertains only to the regular investment accounts.

00:22:07.500 | We know how it's--

00:22:08.660 | so tax-deferred accounts and Roth accounts are simple.

00:22:12.300 | Everything that comes out of a tax-deferred account

00:22:15.300 | is taxed as ordinary income.

00:22:17.540 | Everything that comes out of a Roth account is tax-free.

00:22:20.340 | So we don't have to deal with that.

00:22:21.780 | But we do have to deal with the regular investment account.

00:22:24.700 | And so you have four choices of how

00:22:27.940 | each of the assets are taxed within the regular investment

00:22:31.740 | account.

00:22:32.460 | Could be just taxed as simple interest,

00:22:34.740 | could be taxed like a qualified dividend

00:22:39.500 | as a long-term capital gain.

00:22:42.140 | It could be taxed as a long-term capital gain

00:22:46.060 | when it's withdrawn.

00:22:47.420 | Otherwise, it's not taxed.

00:22:49.220 | And/or it could be tax-free, such as a municipal bond one.

00:22:57.180 | OK.

00:22:57.660 | So I've set it up this way to make it simple.

00:23:00.540 | Money markets, I'm assuming, are taxed as simple interest.

00:23:03.820 | Stocks, I'm assuming, get a little bit

00:23:05.580 | of just simple dividends, unqualified dividends,

00:23:09.060 | taxed at 5%.

00:23:10.380 | But 95% of the assets associated with stocks

00:23:14.700 | are taxed only when they're withdrawn.

00:23:17.980 | Otherwise, they continue to grow.

00:23:20.140 | And with the keep it simple, I said it's 50% simple interest,

00:23:24.340 | 50% when it's withdrawn.

00:23:27.220 | And they're all the same.

00:23:28.980 | So with that, I am through talking

00:23:31.860 | about financial assets.

00:23:33.060 | And then we'll move on to the income page.

00:23:36.420 | Again, it's organized just like the others.

00:23:38.780 | These sets of fields are associated with scenario one.

00:23:44.900 | This is scenario two.

00:23:46.380 | This is scenario three.

00:23:48.060 | Again, you can see that the name we

00:23:50.580 | gave with each of those scenarios is listed up here.

00:23:53.500 | And then here are the items that we can enter data for.

00:23:57.020 | This is a very long table.

00:24:00.940 | There's three.

00:24:02.740 | And for that reason, there are some links up here,

00:24:07.140 | some little hidden buttons that allow

00:24:10.580 | you to scroll from one major function to the next.

00:24:13.820 | So at the top of the page, there's the employment income

00:24:16.820 | stream.

00:24:17.340 | There's three of them.

00:24:18.340 | Beneath that, there's pension income.

00:24:20.300 | I'm going to click this button here.

00:24:22.260 | It will scroll down to bring the pension streams up

00:24:28.620 | to the top of the page.

00:24:29.620 | So there are two.

00:24:30.900 | So you can see you can identify two pensions for husband

00:24:34.620 | and wife for each of the three scenarios.

00:24:38.300 | Now we're going to scroll to the social security inputs

00:24:41.940 | for each of three scenarios.

00:24:43.580 | And then there's windfalls.

00:24:48.660 | You can be taxable.

00:24:50.060 | There's non-taxable windfalls.

00:24:52.620 | Then if you've still got yet other streams of income

00:24:55.980 | you need to specify, you can do that down here.

00:24:59.300 | There's five of these other income streams

00:25:02.380 | that can be defined for each of the husband and wife

00:25:06.660 | for each of the scenarios.

00:25:08.300 | Going down further, you can define two annuities

00:25:13.460 | for husband and wife for each of the scenarios.

00:25:16.380 | And then if you anticipate inheriting

00:25:19.060 | an IRA, a traditional IRA, or a Roth IRA,

00:25:23.140 | at some point in the future, you can do that.

00:25:25.220 | And then finally, you can define a reverse mortgage.

00:25:29.100 | Now with that, I'm going to quickly show you

00:25:31.420 | how I entered the data that I described for this scenario.

00:25:35.540 | At the top are the retirement dates.

00:25:37.620 | I said this couple is going to retire on the same day.

00:25:40.540 | That's going to be May 1, 2024.

00:25:44.620 | And they're both currently working.

00:25:49.100 | So I'm going to put that under employment income

00:25:52.580 | stream number one, which starts when he's 55

00:25:56.300 | and it ends when he's retired.

00:25:58.540 | Now you can define these start and stop dates

00:26:00.860 | for any of these blocks of income stream.

00:26:08.180 | You can define them either by an age, by a year,

00:26:12.060 | by a specific date, or by the retirement date, which is here.

00:26:17.500 | So if you want to tie this income stream to that date,

00:26:20.980 | what you do is just type in an R right there.

00:26:25.020 | So this income stream is going to begin immediately

00:26:27.940 | and it's going to end on May 1, 2024.

00:26:31.620 | So in the meantime, it's going to be $150,000 increasing

00:26:34.900 | to 3% a year.

00:26:36.540 | $12,500 going into his IRA and the company

00:26:41.420 | is going to kick in $6,250.

00:26:43.660 | Meanwhile, the wife starts these two years younger.

00:26:48.060 | She's starting now.

00:26:49.780 | Her income stream of $40,000 is going

00:26:51.740 | to end when she retires on May 1, 2024.

00:26:54.860 | That will also increase to 3% a year.

00:26:56.940 | She'll be contributing $4,000 a year into her 401(k).

00:27:02.140 | And so now I'm going to go down to the pension streams

00:27:05.700 | where Joe is going to have a pension income

00:27:09.780 | stream that starts when he retires on his retirement

00:27:13.380 | date of May 1, 2024.

00:27:15.260 | And it goes indefinitely.

00:27:19.260 | It's the amount is $25,000 and that's fixed.

00:27:22.620 | And it does not increase.

00:27:24.700 | But it does have a 50% survivor benefit

00:27:27.180 | should he die before his wife.

00:27:30.020 | I want to go down to Social Security.

00:27:32.420 | And here I said that Joe will have a $30,000 benefit

00:27:38.700 | if he added in his full retirement age of 67

00:27:42.580 | his wife will have 22k and her retirement age was 67.

00:27:46.860 | However, Joe actually intends to work until he's 70.

00:27:49.940 | So this amount will be increased at, I think, 8% a year

00:27:54.500 | until he reaches age 70.

00:27:56.180 | And it will begin.

00:27:57.900 | And hers will begin at the full retirement age.

00:28:00.020 | So it will be $22,000 from the start.

00:28:03.260 | OK, I said that Joe will be inheriting money

00:28:08.660 | from his parents.

00:28:09.580 | It will be $50,000 in a brokerage account in 2030.

00:28:22.020 | And his wife will be doing some part-time work

00:28:24.740 | earning $2,500 a year from 55 to 60.

00:28:28.580 | It goes up at the inflation rate and will

00:28:31.340 | be taxed as regular income.

00:28:33.140 | But you do have the option if you could borrow something

00:28:36.460 | that's not taxable or taxable as capital gains.

00:28:40.580 | Those are options as well.

00:28:42.140 | Just scrolling on down, no annuities,

00:28:45.260 | but there is an inherited IRA coming at some point.

00:28:48.700 | They anticipate that being $50,000 a year

00:28:51.820 | and then-year dollars in the year 2030.

00:28:55.180 | And it will have a distribution period of 10 years.

00:28:59.980 | Now, so all three of these scenarios are the same.

00:29:04.020 | I don't think I put any differences in them.

00:29:07.260 | So that's how you define the income a problem ago.

00:29:11.100 | Now we're going to move to expenses.

00:29:13.980 | Again, there are a number of subtables here,

00:29:18.180 | different categories of expenses, which have nuances

00:29:22.460 | into how they're modeled.

00:29:23.860 | So the tool does not simply say, here's an expense,

00:29:28.100 | here's a start date, here's a stop date,

00:29:29.780 | and then here's how much it increases per year.

00:29:31.940 | This tool goes way, way beyond that.

00:29:34.540 | So on this page, it models properties,

00:29:37.100 | such as homes and cars.

00:29:38.540 | So what I've said, as I said,

00:29:43.580 | the current, this couple currently owns a home.

00:29:46.060 | They bought it in 2010.

00:29:47.740 | They paid $300,000 as a cost basis for this home.

00:29:51.060 | It's currently valued at $400,000.

00:29:53.940 | It has a mortgage on it at $75,900 at 4.5%.

00:29:58.700 | Monthly payment is $1,338.

00:30:01.660 | They expect to sell it in the year 2027,

00:30:04.580 | and they will have a realtor fee of 6% when they do that.

00:30:07.540 | You can see it.

00:30:10.100 | So when they sell this home,

00:30:11.540 | they'll be buying another retirement home in that same year.

00:30:14.860 | They'll be paying $300,000 for it.

00:30:19.140 | They will be paying cash.

00:30:20.260 | There will be no mortgage,

00:30:21.460 | and they don't ever intend to sell it.

00:30:23.460 | And I said they had a couple of cars.

00:30:25.460 | They bought one in 2012, another in 2017.

00:30:28.780 | You see, this is what they paid.

00:30:30.340 | This is what they're worth.

00:30:31.700 | They have a mortgage on one of them.

00:30:34.100 | These are depreciating some every year.

00:30:37.140 | And when he sells this one,

00:30:38.300 | he expects to buy this one to replace it.

00:30:40.300 | When they sell this one,

00:30:41.140 | they're going to buy another one here to replace it.

00:30:43.820 | And when they sell that one,

00:30:45.420 | they're going to replace it with this one.

00:30:47.260 | So that's the purchase and the sale of each other.

00:30:51.500 | There's 10 roads.

00:30:52.420 | You can model 10 different properties on this table.

00:30:57.020 | So this is the top table is the acquisition

00:30:59.780 | and the loan and sale information.

00:31:01.780 | The table below applies to the same properties.

00:31:06.780 | So that whatever name you type in here is replicated here.

00:31:11.180 | But these get other costs.

00:31:12.780 | These are some costs of ownership,

00:31:14.940 | such as property taxes, insurance,

00:31:18.060 | and annual operating costs.

00:31:20.060 | Gasoline for cars,

00:31:21.260 | maintenance for the homes and the cars,

00:31:23.420 | then utilities.

00:31:24.700 | This is the one page where the three scenarios

00:31:31.460 | don't line up side by side,

00:31:33.420 | because as you can see, this table is very wide.

00:31:35.700 | It just wouldn't work to have them side by side.

00:31:38.180 | So they're stacked on top of each other.

00:31:40.660 | And so these links here help you scroll

00:31:43.740 | from one to the other.

00:31:44.580 | Right now, we're looking at scenario one.

00:31:46.500 | We can look at scenario two by clicking that.

00:31:48.540 | That now brings up scenario two.

00:31:50.740 | There's some click that to bring up scenario three.

00:31:53.620 | In this case, they're all identical.

00:31:55.700 | And at the bottom of the page,

00:31:57.860 | there's some summary information that is calculated

00:32:01.900 | based on the inputs in the tables above.

00:32:04.660 | Now, we're only looking at one scenario at a time.

00:32:07.780 | In this case, this is probably the first time

00:32:09.660 | we've seen this little gizmo here,

00:32:12.060 | which says you can click this button

00:32:14.260 | to specify which scenario you want,

00:32:16.340 | either one, two, or three.

00:32:17.820 | The one that's active is listed here.

00:32:19.860 | So right now, we're looking at scenario one.

00:32:21.460 | If I wanna go to scenario two, I just click that.

00:32:24.340 | And this will change the scenario two, which is the same.

00:32:29.340 | Okay, so the left part of the table is a summary

00:32:32.980 | across all of the 10 assets.

00:32:36.020 | And this is just one of them.

00:32:37.900 | This table, this page potentially goes to the right

00:32:41.420 | about five or six feet.

00:32:43.260 | But that's very cumbersome to try to scroll.

00:32:45.740 | So what this capability here just lets you look

00:32:48.020 | at whichever one you want.

00:32:49.700 | You click up or down to look at a particular property.

00:32:53.060 | And this is the sum.

00:32:54.220 | So on the property one, the current home,

00:32:57.700 | so here's the loan.

00:32:59.460 | They're paying that off.

00:33:00.900 | It's going toward zero.

00:33:03.220 | Here's the monthly payment.

00:33:04.220 | There's the value.

00:33:05.460 | You see the value of the house is going up.

00:33:06.980 | Equity is going up.

00:33:07.900 | These are the taxes, the insurance, and so on.

00:33:10.900 | Then here's the second property.

00:33:14.100 | It kicks in when they sell the first one in 2027.

00:33:17.340 | And it continues on to the end of the modeling period.

00:33:21.460 | So you can see these are the annual expenses

00:33:26.220 | when a property is sold.

00:33:27.860 | There's a windfall.

00:33:29.660 | The net expense is a difference

00:33:31.420 | between the expense and any windfall.

00:33:35.300 | Otherwise, it's just the annual expense.

00:33:37.900 | These are the tax deductions.

00:33:40.100 | And then here's the total equity.

00:33:42.340 | Well, that's basically how you specify property.

00:33:45.780 | This tool also does rental property,

00:33:47.740 | very similar to the personal property,

00:33:50.620 | but it's more complicated.

00:33:53.380 | But that probably only applies to very few people.

00:33:56.500 | So we're definitely not gonna,

00:33:57.780 | we're gonna skip over that in this demonstration.

00:34:00.220 | Okay, one other thing, let me go back.

00:34:03.300 | I failed to mention, for any of these properties,

00:34:07.260 | you can do a home equity loan as well.

00:34:09.980 | You pick the one property you wanna do a home equity loan,

00:34:12.820 | fill out the details here,

00:34:14.420 | and you can do a home equity loan

00:34:15.900 | or a home equity line of credit, whichever you choose.

00:34:19.860 | We're not gonna do that in this example.

00:34:21.860 | Okay, now moving on to children,

00:34:23.700 | which is second expense category,

00:34:26.820 | which is different from all others.

00:34:28.700 | It's basically, the table at the top

00:34:31.900 | deals with college education expenses for the children,

00:34:35.740 | for up to four children.

00:34:37.180 | And the table below deals with the expenses

00:34:40.220 | for those children prior to their college years.

00:34:43.740 | So in this example, we've got two kids, John and Sue.

00:34:47.620 | John's gonna start college this year.

00:34:49.660 | Sue's gonna start in a couple of years.

00:34:51.300 | Therefore, Sue's expenses in the next couple of years

00:34:54.900 | are listed here, they're $8,000 a year.

00:34:56.900 | So the annual cost of college is $25,000.

00:35:03.060 | They will be going for four years.

00:35:04.940 | The parents are only gonna pick up 25% of that though.

00:35:08.260 | And for John, they can anticipate funding that

00:35:12.100 | with the 529 plan, which had an initial balance,

00:35:15.140 | which we already specified.

00:35:16.460 | I think it was $50,000 already there.

00:35:19.420 | But for Sue, we're just gonna do,

00:35:21.300 | we're gonna pay as we go.

00:35:23.220 | So the details of how all that lays out is not shown here,

00:35:26.340 | but we'll get to it a little bit later

00:35:29.060 | when we get to the tabular projection.

00:35:32.140 | Healthcare expenses is yet a different,

00:35:35.020 | a different way of modeling an expense.

00:35:39.500 | As I mentioned, when I was briefing the scenario,

00:35:43.380 | these, their healthcare expenses vary quite a bit

00:35:49.820 | from during their working years

00:35:51.900 | as they go into their retired, early retired years,

00:35:56.260 | and then ultimately on to their Medicare years.

00:35:59.660 | So there are fundamentally five periods of time

00:36:03.700 | that the tool deals with.

00:36:05.740 | The first of those applies,

00:36:08.220 | and all of these apply to married couples in general.

00:36:12.860 | Period one is when both partners

00:36:15.740 | of the marriage are working.

00:36:18.540 | Period two follows that,

00:36:20.820 | and that's when only one of them is working.

00:36:23.380 | Period three is when neither of them is working,

00:36:28.980 | yet none, neither of them has reached Medicare age yet.

00:36:33.220 | Period four is when only one of them

00:36:36.740 | has reached age 65 and gone on Medicare.

00:36:39.260 | And then finally period five

00:36:41.060 | is when both of them are 65 and on Medicare.

00:36:44.420 | So for each of those periods of time, there's two rows.

00:36:47.380 | One of the first row deals with insurance premiums,

00:36:49.820 | the other deals with out-of-pocket expenses.

00:36:52.460 | So here's the numbers that I've chosen for there.

00:36:55.620 | And then you can see when there is no period two

00:36:58.420 | because they both retire,

00:36:59.660 | they both stop working on the same day.

00:37:01.820 | So they immediately go from period one to period three,

00:37:04.140 | and this is consequently blacked out.

00:37:06.660 | At this point in time, they go on Obamacare,

00:37:09.540 | and the premiums go up substantially,

00:37:12.260 | but this is the actual premium they pay.

00:37:14.540 | And prior to any subsidy being applied,

00:37:19.540 | then these are their out-of-pocket expenses.

00:37:24.660 | And then as the husband goes on to Medicare,

00:37:29.660 | the expenses will start coming down a little bit,

00:37:32.740 | and then ultimately it'll go down further

00:37:34.460 | when they both get on the Medicare.

00:37:36.820 | And so the tool will, it'll automatically calculate

00:37:41.820 | Medicare Part B premiums for you if you check this box.

00:37:47.820 | If you don't check it, you have to know the name of it.

00:37:50.260 | In this example, I'm assuming the tool

00:37:52.380 | is calculating the Medicare Part B premiums.

00:37:55.940 | You would still, if you have supplemental insurance

00:37:58.420 | or Part D insurance,

00:37:59.820 | you would need to enter those premiums here or here.

00:38:03.660 | Now, if any of these expenses are paid with pre-tax dollars,

00:38:08.460 | you can enter what portion of it is paid

00:38:10.500 | with pre-tax dollars in these fields.

00:38:13.420 | Moving down below, now this part of the table

00:38:15.900 | deals with Obamacare Affordable Care Act health insurance.

00:38:20.340 | You just check if you want to use it,

00:38:23.380 | you just check the box.

00:38:25.220 | For period three, these periods are the same as these periods.

00:38:29.500 | So if you're gonna use Obamacare in period three,

00:38:32.420 | you check that box.

00:38:33.460 | For period four, you check that box.

00:38:36.340 | And then assuming you are gonna use ACA insurance,

00:38:40.020 | this is where you put in the key number,

00:38:43.520 | which goes into the calculation of the subsidy.

00:38:47.500 | This is one of the, so this is the cost of the,

00:38:50.140 | I think what you call the second lowest,

00:38:52.740 | the second least expensive silver plan premium.

00:38:57.020 | So in this case, it's $12,000.

00:39:00.740 | So your subsidy, the subsidy for this couple

00:39:03.380 | will be based on this number

00:39:05.780 | and their modified adjusted gross income.

00:39:10.260 | So those two factors go into calculation of the subsidy.

00:39:14.420 | And there's some tables behind the scenes here,

00:39:16.660 | which are used to calculate those values.

00:39:20.080 | Another thing that you can enter on this table

00:39:23.900 | is what happens after if one of the spouses die,

00:39:26.660 | because these are expenses for both members of the marriage.

00:39:31.660 | If one of them dies, what's gonna happen?

00:39:34.100 | In this case, we're assuming that these costs

00:39:35.980 | will be cut by 50% upon the death of the first spouse.

00:39:39.860 | And then finally at the bottom,

00:39:41.660 | if there's long-term care costs that you anticipate,

00:39:44.380 | you can specify that down here.

00:39:47.220 | Annual cost, what year it begins and how long it goes.

00:39:51.020 | If you leave that blank,

00:39:52.620 | it begins at that age and lasts forever,

00:39:54.860 | for the lifetime of this person.

00:39:56.900 | So that is how health care is done.

00:40:01.780 | Now, moving to discretionary expenses.

00:40:08.100 | This is another big table.

00:40:09.420 | It's got three segments to it.

00:40:11.260 | Scenario one, two, and three.

00:40:13.620 | And then each of these scenarios

00:40:15.820 | is further divided into three time periods,

00:40:19.020 | with the idea being your expenses

00:40:21.060 | are probably gonna be different in your working years

00:40:24.300 | than they are during your early retired years,

00:40:28.100 | and then may change again further

00:40:30.660 | in your late retirement years.

00:40:32.460 | So in this example, all the costs are,

00:40:36.540 | I think they're the same,

00:40:37.540 | except I put in a bigger number here for period two,

00:40:41.900 | which will be the early retired years,

00:40:43.940 | anticipating that the couple anticipates doing some travel.

00:40:47.380 | So that number may peak up during this period too,

00:40:52.180 | but ultimately they get a little bit older at 20, 37,

00:40:54.740 | or slowing down again, and the number comes back down.

00:40:58.060 | So the discretionary expenses are 27.5 for period one,

00:41:03.060 | 45K for period two,

00:41:06.660 | and then dropping back down to 25K during retirement,

00:41:11.660 | during period three.

00:41:13.780 | And should, again, what happens

00:41:16.380 | if one of the partners of the marriage passes away?

00:41:19.580 | These expenses are probably going to reduce,

00:41:22.820 | and you can specify by how much down here.

00:41:25.260 | In this example, I'm assuming they dropped by 40%

00:41:28.220 | after the death of the first spouse.

00:41:30.620 | Now, I'll go to another table, miscellaneous expenses.

00:41:39.980 | This is generally for capturing one-off costs,

00:41:42.820 | like the weddings, it doesn't have to be one-off,

00:41:45.540 | but in this case, it is.

00:41:47.380 | John, the son's wedding, $15,000 in the year 2027,

00:41:53.860 | just one time for the start year in the second year.

00:41:57.860 | The start and stop year are the same,

00:41:59.340 | same for Sue's wedding.

00:42:01.400 | There's the cost, it occurs in 2030.

00:42:04.740 | These are today's dollars,

00:42:05.860 | but they will be increased up to that point in time.

00:42:09.020 | And then both scenarios use the same data here.

00:42:13.980 | Now, the tool also allows you to model term life insurance,

00:42:17.660 | a whole life insurance program.

00:42:19.180 | I'm going to skip over that for this example.

00:42:21.620 | And then finally, the final piece of expense inputs here

00:42:26.300 | is charitable contributions.

00:42:28.140 | In this case, I just picked one charity.

00:42:31.860 | The amount is $10,000, it starts this year,

00:42:35.700 | increases at the inflation rate,

00:42:39.420 | and it is to be treated as a qualified charitable

00:42:43.620 | distribution or donation at age 70.

00:42:48.620 | So, again, this is for scenario one,

00:42:56.420 | scenario two, scenario three.

00:42:58.900 | Okay, so that completes the input.

00:43:03.300 | I have now defined the scenario.

00:43:05.300 | Now we can see what the outputs are.

00:43:08.100 | Jim, is there a way for me to,

00:43:11.060 | there's a menu at the top that's,

00:43:14.540 | the zoom table at top is blocking my,

00:43:19.540 | what I'm trying to get to.

00:43:22.860 | - Like the yellow bar,

00:43:25.480 | do you have like a yellow bar around the screen?

00:43:27.840 | You may be able to click it and it may not be real visible,

00:43:31.980 | but it may actually work.

00:43:34.220 | You can move some of those controls, Stuart.

00:43:37.340 | - How do I?

00:43:38.340 | - Grab them and move them.

00:43:39.540 | - Just grab it and move it?

00:43:40.820 | - Just drag it, yeah.

00:43:41.860 | - Oh, okay.

00:43:44.020 | Thank you, thank you, thank you.

00:43:45.140 | Perfect.

00:43:45.980 | Okay, now we can see what we're doing.

00:43:47.620 | Okay, so now those are the input screens.

00:43:52.060 | Now I'm going to skip over analysis for the moment.

00:43:54.380 | I'm going to show you some of the tabular projections

00:43:58.660 | produced by the tool.

00:44:01.220 | There are eight separate views, customizable views.

00:44:05.140 | You can define what these views are

00:44:07.460 | and what data goes into these views,

00:44:09.740 | but I've got them set up.

00:44:10.860 | And so it's income, contributions, expenses,

00:44:13.300 | and so forth over to summary.

00:44:15.860 | And then additionally,

00:44:17.220 | you can look at the details of the adjusted gross income

00:44:20.620 | and your itemized deductions.

00:44:23.140 | But let's just start over here with income.

00:44:25.580 | So you can see,

00:44:26.420 | so these are the fixed rate analysis results.

00:44:31.420 | All these are based on the fixed rate returns

00:44:36.620 | that we define on the asset classes

00:44:38.380 | and asset allocation pages.

00:44:40.580 | And so Joe's income is,

00:44:42.340 | you can see it's here,

00:44:45.340 | starts at 150 and drops down when he retires here in 2024.

00:44:49.140 | He only worked a partial year.

00:44:50.820 | So you can see it's starting to step down.

00:44:52.500 | Then he took that part-time job,

00:44:54.820 | earning $10,000 a year for several years.

00:44:57.980 | His wife earned $40,000 a year after her retirement date,

00:45:01.300 | I think in May of 2024.

00:45:03.820 | And then Joe has a pension that kicks in

00:45:08.100 | on his retirement day here.

00:45:09.500 | So he gets a partial year here,

00:45:13.660 | and then in full years here thereafter.

00:45:17.820 | But remember, I told you this was a fixed pension.

00:45:22.380 | It does not increase over time.

00:45:24.020 | We're currently looking at this data

00:45:26.380 | in terms of today's dollars.

00:45:28.540 | If I switch it to future year dollars,

00:45:30.980 | you'll see it comes back to the $25,000.

00:45:33.540 | And then I think I also mentioned

00:45:36.660 | it has a 50% survivor option.

00:45:40.500 | So in his death here at age 85,

00:45:45.340 | so he goes away,

00:45:46.940 | but now his wife is still going for several more years,

00:45:49.660 | and his pension drops to 50% of the $25,000.

00:45:54.660 | Okay, I'm gonna switch back to today's dollars.

00:45:59.700 | You can see social security kicks in here,

00:46:02.100 | and this is the portion of it that is taxable

00:46:04.060 | based on the modified adjusted gross rate,

00:46:05.980 | or the taxable amount based on the AGI.

00:46:10.500 | That determines how much of the social security income

00:46:12.740 | is taxable, and that's presented to you here.

00:46:15.100 | Here's another page that shows just a few contributions.

00:46:18.820 | These are Joe's contributions, his 401(k).

00:46:21.860 | These are Jane's contributions,

00:46:23.820 | and these are the company, this is Joe's company numbers.

00:46:27.340 | Then here's a page that shows the expenses.

00:46:30.620 | These are the, this came off the expenses page.

00:46:34.660 | The, I mean, the net, the property page.

00:46:38.660 | This came off the children's page.

00:46:41.860 | These are the, we initially had $50,000 in the 529 plan,

00:46:48.340 | but that wasn't enough to fund the first kid's education.

00:46:51.900 | We had to kick in some more money,

00:46:53.340 | so that's, that contribution is here.

00:46:55.900 | These are the healthcare expenses.

00:46:57.700 | We talked about it, it starts low at $3,000 a year,

00:47:00.980 | but then it goes up high, and then comes back down again.

00:47:04.660 | Once we get onto Obamacare,

00:47:11.820 | there are some subsidies that are created.

00:47:14.020 | You can see those are listed here,

00:47:16.060 | and they serve to reduce the healthcare expenses here.

00:47:20.420 | So this takes into account the application of that subsidy.

00:47:24.620 | We had a miscellaneous expenses

00:47:28.660 | to pay for those two weddings, that's what these are.

00:47:31.740 | And then these are the specific discretionary expenses,

00:47:34.740 | which included the increased spending for the travel

00:47:39.340 | during the early retirement year,

00:47:40.900 | the 10-year ban there, I believe,

00:47:42.580 | and then it drops back down to about 25,000.

00:47:45.580 | Then upon the death of the husband,

00:47:48.500 | it drops by 40% down to this level.

00:47:50.980 | Then I think that the final expense that we specified

00:47:56.180 | was the charitable donations.

00:47:59.740 | They start off as a non-QCD prior to age 70,

00:48:03.780 | but at age 70, they become qualified charitable donations.

00:48:08.780 | And basically these then come out

00:48:12.380 | of Joe's tax deferred accounts as RMDs,

00:48:17.380 | but they're not taxable.

00:48:18.740 | The account for his RMD, but they're not taxable.

00:48:21.460 | So that is the expenses page.

00:48:27.260 | Now here's a page that shows the detailed tax information.

00:48:31.740 | I told you this still does detailed federal

00:48:34.340 | and state tax calculations.

00:48:36.660 | And these are some of the information

00:48:39.220 | associated with that.

00:48:40.500 | Here's the AGI column.

00:48:42.740 | And if you want to, if you see this,

00:48:44.180 | you want to say, what the, how did that,

00:48:45.540 | how did I actually get it down?

00:48:46.740 | What are the details?

00:48:47.740 | You can come over here and there are the details,

00:48:51.340 | this page.

00:48:52.700 | So there's the sum and here are all the components of it.

00:48:55.980 | And it's actually wider than this page.

00:48:57.900 | So you can scroll over to see some more of it there.

00:49:00.500 | And these are the itemized deductions.

00:49:04.060 | Should you be able to itemize,

00:49:05.460 | these are the details of that.

00:49:07.340 | Now we're going to go back.

00:49:08.660 | This is the tax page again.

00:49:10.700 | Here's reportable capital gains.

00:49:12.900 | These are the deductions and exemptions.

00:49:16.180 | So there's AGI minus this, it's federal taxable.

00:49:21.100 | There's a state taxable.

00:49:22.220 | These, here's a federal income tax, state income tax,

00:49:25.980 | which goes away by the way,

00:49:27.740 | when this couple relocates from Maryland to Texas

00:49:30.740 | at the end of 2027, which we specified on the homepage.

00:49:36.780 | While they're still working,

00:49:37.620 | they've got social security tax, that's this.

00:49:42.140 | And then the overall effective tax rate

00:49:45.100 | is shown in this column.

00:49:46.180 | This is their marginal tax rate.

00:49:48.580 | Starts off at the 22% range, drops down to 10%,

00:49:53.220 | finally gets up into the 15% range when the RMBs kick in.

00:49:57.420 | And that is that.

00:50:00.540 | Now, so here is a page that shows,

00:50:03.780 | what are the various accounts doing?

00:50:06.140 | We talked about those accounts initially.

00:50:08.140 | So there's a 529 plan.

00:50:10.540 | There's a cash, there's a cash, there's a cash account.

00:50:13.460 | There's a regular investment accounts,

00:50:15.060 | both tax deferred accounts for husband and wife.

00:50:18.100 | For all the accounts and inherited IRA account,

00:50:22.780 | the health savings account.

00:50:24.620 | And this is the total of these savings accounts.

00:50:28.340 | This is the equity and the property.

00:50:30.340 | And this is the total net, which is net savings

00:50:32.820 | plus the equity and the property.

00:50:35.700 | And so the growth over time,

00:50:40.060 | you see these are the rates of return

00:50:41.940 | based on what we defined over here

00:50:44.140 | on the financial assets as an allocations page.

00:50:47.420 | But over here, we said, these are real.

00:50:49.740 | These are the real rates of return.

00:50:51.780 | Over here, these are the nominal rates of return,

00:50:54.260 | which is basically the real rate of return plus inflation.

00:50:57.900 | So you can see they started at 7%,

00:51:01.260 | they dropped down to 6.1,

00:51:03.460 | and that's where they remain to the end.

00:51:06.780 | And then these are the actual growth amounts.

00:51:09.220 | These are actual dollar amounts of that growth.

00:51:13.540 | These are in terms of today's dollars.

00:51:16.220 | If you wanna look at it in terms of future year dollars,

00:51:18.460 | you click this button and then you get that.

00:51:20.700 | Okay, what about withdrawals?

00:51:23.660 | One of the withdrawals we know we're gonna have

00:51:26.700 | is we're gonna be taking money out of that 529 plan

00:51:29.660 | in favor of First Kids College.

00:51:31.660 | And then RMDs are gonna start.

00:51:34.380 | And they start at age 72.

00:51:36.900 | And that begins, so that the age is shown here

00:51:39.900 | is the age of the husband at the beginning of the year.

00:51:43.820 | But we know his birthday was sometime during the year,

00:51:46.740 | so that RMD, so he reaches 72 sometime during this year.

00:51:50.580 | And so that's when those are due.

00:51:52.740 | His wife begins two years later, and those are their RMDs.

00:51:58.340 | And even though Joe passes away at this point in time,

00:52:02.020 | that RMD continues and goes to his wife.

00:52:04.740 | She inherits that.

00:52:06.860 | But we do have a negative cash flow situation going.

00:52:11.660 | So there's unscheduled withdrawals

00:52:13.660 | from the regular investment account.

00:52:15.660 | I believe we must have negative cash flow.

00:52:18.940 | And so yes, indeed we do.

00:52:21.500 | So here's a summary page.

00:52:23.420 | And this is a total of the income, total expenses.

00:52:28.420 | This is the difference between them.

00:52:30.220 | This is the cash flow.

00:52:31.820 | It's positive while they're working,

00:52:33.340 | but when they reach their retirement age in 2024,

00:52:37.860 | then they get into a negative cash flow situation.

00:52:41.340 | And this is the overall withdrawal rate.

00:52:45.660 | Total property, total property.

00:52:48.620 | They have a loan for a while.

00:52:49.820 | There's the property loan balance.

00:52:51.620 | There's the equity.

00:52:52.860 | Again, net savings, then the total net worth.

00:52:55.500 | So going back to withdrawals,

00:52:56.740 | we do have a negative cash flow going.

00:52:58.860 | Therefore, there's gotta be withdrawals

00:53:01.260 | taken to cover that from somewhere.

00:53:04.100 | And because of the withdrawal priority

00:53:07.180 | that we specified back here, regular first,

00:53:10.620 | and then the husband's tax deferred account,

00:53:14.540 | it starts taking those,

00:53:18.660 | covering those negative cash flows

00:53:20.620 | from the regular investment account.

00:53:22.460 | And that's what these are.

00:53:25.860 | But ultimately, I think that, let's see.

00:53:30.860 | The regular investment account runs out of money here.

00:53:37.780 | So now we've got to go somewhere else

00:53:39.420 | to cover the negative cash flow in 2030.

00:53:43.140 | So in 2030, or 2031,

00:53:49.220 | we have to start taking from Joe's tax deferred account,

00:53:53.140 | and that's what these are.

00:53:55.340 | - Okay, so that's the tabular projections.

00:53:58.620 | And one other thing, if you don't like the way this is,

00:54:01.660 | there's a lot of flexibility here.

00:54:03.620 | First of all, if you don't like the way this is organized,

00:54:07.340 | you want it to be organized in some other way,

00:54:10.460 | you can just take that,

00:54:12.700 | click on that column that you want to move,

00:54:15.340 | and go over here and move it to the left.

00:54:17.420 | Move it back to the right.

00:54:20.460 | Move it over there, move it to the end.

00:54:24.700 | Put it wherever you want it.

00:54:26.100 | If you don't like the title that I've given it,

00:54:30.460 | you can delete that header, call it something else.

00:54:33.060 | I just have to remember how to do it.

00:54:41.900 | You click the add header, come down here.

00:54:44.340 | Something else.

00:54:53.340 | So you have flexibility.

00:54:54.460 | You can change these things any order you want.

00:54:58.460 | You can change these headers, expand those columns.

00:55:01.540 | Additionally, I told you, you can define these eight views,

00:55:04.940 | however you want them to be.

00:55:05.900 | You do that from this tabular projections, major page,

00:55:09.620 | you come over to the view management sub-page,

00:55:12.940 | and then here are all the columns of data

00:55:15.660 | that are available.

00:55:16.500 | I think there's 130 some columns of data.

00:55:19.420 | So it's far more than one page wide.

00:55:21.980 | You do have to scroll to see all of them.

00:55:24.060 | But here are the eight views.

00:55:30.500 | You can define, call them whatever you want to call them.

00:55:32.700 | If you don't want to call it any kind,

00:55:33.820 | you type in something, change it

00:55:35.780 | to whatever you want to call it.

00:55:37.980 | And then you check, you just put checks.

00:55:40.300 | These are the columns of data I want to include

00:55:42.500 | on that page.

00:55:43.940 | You just go through, you check whichever box,

00:55:46.220 | whichever columns you want,

00:55:48.100 | and it will appear on that page.

00:55:50.420 | This row right here tells you

00:55:52.980 | whether there's actually any data in that column or not.

00:55:56.020 | So you can see, if it has a no,

00:55:58.140 | I didn't check it for the most part.

00:56:02.460 | So you can just go through there

00:56:03.780 | and pick whichever views you want.

00:56:05.980 | So that's it.

00:56:06.820 | I won't dwell on it anymore unless there's some questions,

00:56:08.820 | but then I'm gonna, so now I'm gonna move

00:56:10.220 | to the graphical projections.

00:56:12.460 | I said this thing produces outputs

00:56:15.020 | in terms of table and graphs.

00:56:17.340 | So here's a graphical view of the savings and net worth.

00:56:21.580 | There's quite a bit of data on here.

00:56:24.380 | The bar chart portion of this thing

00:56:29.100 | is all the savings related things.

00:56:31.260 | And these are stacked bar charts.

00:56:34.740 | So the top is the overall net worth.

00:56:39.100 | And so at the top, the top segment there

00:56:42.660 | is the total equity and property.

00:56:45.140 | The bars beneath that are the various components

00:56:48.100 | of your savings.

00:56:49.420 | And then the line graph is income.

00:56:52.700 | The blue line is income, and this line is the expenses,

00:56:56.100 | and they are calibrated against the scale on the right.

00:56:59.700 | The bars are calibrated against the scale on the left.

00:57:03.340 | And you can show this in terms of today's dollars

00:57:05.500 | or future dollars as well.

00:57:07.060 | Okay, with all that said, I've got one other thing.

00:57:12.060 | One of these is reports.

00:57:14.060 | The tool is designed to be an interactive tool.

00:57:16.660 | You make your input, you see the outputs,

00:57:18.500 | and you can flip back and forth.

00:57:20.140 | You can see all the outputs.

00:57:22.940 | But if you wanna produce it, produce a report, a PDF,

00:57:26.100 | you can produce a PDF file from this page,

00:57:29.060 | and you can arrange that in a landscape orientation

00:57:32.260 | or portrait orientation.

00:57:33.660 | It creates an input report, an output report.

00:57:35.980 | I'm not gonna do it, but it generates a PDF file,

00:57:39.340 | and you can print it, share it with someone else,

00:57:41.620 | whatever you wanna do with it.

00:57:43.340 | Okay, with all that said, now let's do some analysis.

00:57:46.100 | So based on all these inputs,

00:57:49.700 | how's this couple gonna fare?

00:57:51.460 | So I'm gonna start off by doing a Monte Carlo analysis

00:57:55.580 | on scenario one.

00:57:57.580 | And to do that, I'd select this,

00:58:01.180 | but the analysis type that I'm going to do is shown in red.

00:58:05.300 | Right now, it's Monte Carlo is selected.

00:58:08.220 | If you wanna do historical, you click that,

00:58:10.140 | and see it changes to red.

00:58:11.980 | I'm gonna go back to Monte Carlo

00:58:13.700 | and click update the active analysis.

00:58:16.820 | And it's gonna take several seconds.

00:58:18.780 | It's gonna do that analysis.

00:58:20.420 | There it is.

00:58:23.420 | And so there are two primary things shown here.

00:58:29.900 | The red line sneaking through the middle there

00:58:33.060 | is the fixed rate analysis

00:58:37.540 | based on average rates of return of each account.

00:58:41.700 | And then the blue bands are the Monte Carlo analysis.

00:58:45.140 | The product goal uses 500 different test cases

00:58:53.060 | in its Monte Carlo analysis.

00:58:55.500 | And the blue bands are trying to show you

00:58:59.540 | the distribution of those results

00:59:02.420 | across all 500 test cases.

00:59:04.500 | And they're arranged by a percentile.

00:59:07.820 | They're 10% bands.

00:59:11.500 | The lowest band is not shown,

00:59:14.500 | and neither is the highest band.

00:59:16.780 | So the first band down at the bottom

00:59:19.380 | is the results that show up

00:59:21.540 | in the 10th to the 20th percentile.

00:59:24.340 | This is the 20th to the 30th, and so on up.

00:59:27.260 | So this is the 80th to the 90th percentile.

00:59:30.460 | With the cursor on there,

00:59:31.300 | it shows you what percentile range we're talking about.

00:59:35.180 | So you can see, based on the standard deviation

00:59:40.180 | that I specified earlier,

00:59:44.460 | we get quite a bit of a range in these results over time.

00:59:49.460 | But in this particular case,

00:59:52.780 | the company had a 98% success rate

00:59:57.380 | at the end of their life.

01:00:00.980 | So I'd say that's pretty good.

01:00:03.500 | - Stuart, this is Jim. I have a question.

01:00:05.900 | - Yes, Jim.

01:00:06.740 | - I noticed when you set up the original assets,

01:00:09.180 | you put the stock market, I think,

01:00:10.500 | at 5% with a 20% standard deviation.

01:00:13.380 | That's reflected here, right?

01:00:16.100 | That's some of what you're seeing here.

01:00:18.780 | My question is, I'm not used to thinking about it

01:00:21.660 | within a standard deviation world.

01:00:23.260 | Is that typical, or what would you say

01:00:26.020 | about the way you set this up with the 5 and 20?

01:00:29.380 | - Well, the Monte Carlo analysis is based on,

01:00:32.980 | you use it, random rates of return.

01:00:35.860 | Yeah, I mean, what it's trying to do

01:00:37.180 | is simulate market volatility.

01:00:40.740 | And it does that by using random rates of return,

01:00:45.380 | using a normal distribution.

01:00:49.380 | And to do that, it needs to generate random numbers.

01:00:53.580 | And those random numbers are based on two things.

01:00:56.900 | One is the mean, which we define over here.

01:01:01.900 | - Yeah, I guess my question is more,

01:01:04.620 | how would you describe a 5% return, 20% standard deviation?

01:01:09.500 | Is that like the '80s, or is it like the market is now?

01:01:13.540 | How would you give people a feel

01:01:15.660 | for how you put that input in?

01:01:17.300 | - Well, I'll tell you, I'm gonna give you tips

01:01:20.220 | from bogey heads.

01:01:21.420 | You see this link right there I didn't mention?

01:01:25.980 | Oh, well, I'm sorry, I'm sharing my screen.

01:01:29.580 | That's gonna mess me up big time.

01:01:31.460 | Oh, well, here it is.

01:01:32.940 | Did everybody see that?

01:01:34.820 | - Yeah, we saw it, yes.

01:01:43.260 | - I mean, are you still seeing the spreadsheet

01:01:47.100 | or are you seeing the Bogey Heads website?

01:01:50.460 | - We're actually seeing the spreadsheet.

01:01:52.740 | It could be that you asked,

01:01:53.900 | you told it to share the Excel application,

01:01:56.820 | but you can also share your screen.

01:01:58.580 | - Yeah, I'll just...

01:02:00.980 | - Actually, I've got a question I posted in the chat,

01:02:06.380 | but are there defaults?

01:02:07.980 | For most people that aren't familiar

01:02:09.300 | with the recommended standard deviations

01:02:11.300 | or current thinking,

01:02:12.180 | are there defaults built in that we can use?

01:02:14.580 | - Absolutely, so that's right here.

01:02:17.540 | I'm just gonna click it.

01:02:19.580 | I don't know that, I'm gonna click and see what it does.

01:02:23.060 | But yeah, yes, and those are the defaults.

01:02:28.780 | So I just clicked to load the defaults.

01:02:32.220 | What it did was load these three asset classes

01:02:34.940 | and it used this rate of return

01:02:39.940 | and this standard deviation.

01:02:41.620 | And so the tips on the Bogey Heads there,

01:02:43.940 | I thought that was, that's a pretty good article

01:02:47.980 | on the website there that provides,

01:02:50.220 | it provides historical rates of return

01:02:56.340 | for various asset classes, stocks and bonds,

01:03:00.100 | and what the standard deviations have been.

01:03:02.540 | And it also, there's other pieces on that webpage

01:03:08.660 | that show what they predicted,

01:03:10.540 | someone predicts it's going to be in the future.

01:03:12.900 | I think John Bogle is one of the people

01:03:14.740 | who contributed to that at one point in time.

01:03:17.020 | I think his inputs were there last time I looked at it.

01:03:19.740 | - Yeah, he's the, if you click the link,

01:03:22.740 | it takes you to the wiki,

01:03:24.140 | the historical and expected returns page on the wiki.

01:03:27.180 | - Okay, Bob, if you want to share your screen,

01:03:30.380 | you could show it.

01:03:31.700 | - Okay, yeah, it might be easier.

01:03:34.780 | Let me, I've got mine on full screen now.

01:03:39.780 | - Should I stop sharing?

01:03:45.820 | - No.

01:03:47.260 | - Yeah, go ahead and stop.

01:03:48.220 | You can restart after we're done here.

01:03:49.860 | - Okay, okay, there we go.

01:03:51.340 | - I see there's a comment in the chat window

01:03:59.220 | that Joel uses 6% nominal with a 20% standard deviation.

01:04:04.220 | - There's also somebody asking as to

01:04:13.260 | whether there's a silver edition available

01:04:15.500 | in between the bronze and gold.

01:04:17.820 | - Not, no, there is not.

01:04:20.900 | At one point in time, there was one,

01:04:23.580 | but there's not currently.

01:04:26.980 | - So can y'all see my screen now?

01:04:28.620 | - I'm still seeing the asset class screen.

01:04:32.860 | - Oh, we're seeing, Bob, you're sharing.

01:04:34.380 | That's your screen, yeah.

01:04:35.220 | - I'll go to my mouse.

01:04:36.580 | So yeah, if you click on the tips from Bogleheads,

01:04:44.180 | it takes you there, which has...

01:04:49.100 | Anybody see what I'm looking at?

01:05:00.340 | - Yes, very helpful, thank you.

01:05:01.740 | - All right, that's all it did.

01:05:03.620 | Just wanted to illustrate what was happening

01:05:05.460 | if you click the...

01:05:06.460 | All right, I'm not sharing it.

01:05:11.740 | (mouse clicking)

01:05:14.500 | Okay.

01:05:16.500 | Okay, are we back to me now?

01:05:27.580 | - Yeah, go ahead, Stuart, thank you.

01:05:30.140 | - Okay, sure.

01:05:31.340 | So Jim, did that get your question answered, sort of?

01:05:34.500 | - Yes, I'm gonna dig into that page that you guys said

01:05:37.660 | and try to understand the feel for it.

01:05:40.620 | I do a lot of statistical things,

01:05:42.100 | but I never really looked at it in the market.

01:05:44.460 | - Okay.

01:05:45.860 | So you can see there's a little bit

01:05:50.860 | of a yellow line showing up back there.

01:05:54.660 | That's because we did, I think it's probably

01:05:57.300 | because I clicked that load to defaults

01:06:01.020 | and it changed the rates returned just a little bit.

01:06:04.740 | So I'm gonna update the analysis.

01:06:08.260 | And it's...

01:06:09.820 | And there it is, okay.

01:06:14.820 | And so that's a Monte Carlo analysis.

01:06:18.860 | And again, the last, the success rate

01:06:21.340 | over the last 10 years of the modeling period

01:06:23.900 | up to the death of the wife is shown here.

01:06:26.780 | It's nearly 100%.

01:06:30.020 | You can also show expenses.

01:06:31.780 | The title is Total Savings and Total Spend.

01:06:34.100 | You can show expenses here as well.

01:06:37.660 | And it shows up, it's calibrated

01:06:39.700 | against the scale on the right.

01:06:41.860 | And there's this gray band here

01:06:44.020 | where the dashed line is the expenses

01:06:48.220 | with the fixed rate, fixed rate return expenses.

01:06:53.220 | And the gray band around that is the Monte Carlo analysis.

01:07:01.380 | So as you earn more, if you're doing well

01:07:06.380 | in your Monte Carlo analysis,

01:07:10.100 | you're gonna, your accounts are gonna earn more.

01:07:12.620 | You're gonna be paying more taxes.

01:07:14.220 | And that's probably what causes the certain amount

01:07:18.420 | of width in that band of expenses there.

01:07:21.500 | But it's, I built in the ability to hide it

01:07:24.620 | because it lays on top of that, of the blue bands.

01:07:27.860 | And sometimes it can be very wide

01:07:29.900 | and almost cover up the blue bands.

01:07:31.540 | So therefore I generally run with it hidden.

01:07:34.780 | We wanna look at historical results.

01:07:38.420 | I will click it and then I'll describe

01:07:39.940 | how it works briefly.

01:07:41.220 | Okay, there's a result using historical analysis.

01:07:47.740 | When I was, so this is using historical data

01:07:52.860 | and I needed to show you where that is defined

01:07:55.700 | on the financial assets, historical data.

01:07:59.980 | And here's, so this has historical data built into it

01:08:04.980 | and it has S&P returns based from Robert Shiller

01:08:09.540 | go all the way back to 1871.

01:08:12.460 | And then there's information from, let's see,

01:08:17.180 | the Stern School of Business has the treasury bills

01:08:22.180 | and treasury bonds data going back to 1928.

01:08:26.220 | And that's, so that's what these are.

01:08:28.060 | These are the historic returns that I just described,

01:08:31.460 | Shiller returns, these are the Sterns returns.

01:08:33.980 | And if you have your own data that you can use,

01:08:38.860 | that you wanna define for your own asset classes,

01:08:41.260 | you can do that with these extra columns over here.

01:08:45.020 | But for this example, we're using this,

01:08:49.780 | the history data that I got from Shiller and Sterns.

01:08:54.700 | And so the way that the historic analysis works

01:08:58.020 | is it just runs through these sequences one after another.

01:09:03.020 | And so let's say that, just to make it simple,

01:09:06.540 | let's say I have 50, I have,

01:09:09.220 | let's say I have a hundred years worth of history data

01:09:12.100 | and the lifespan that I'm gonna model is 50 years.

01:09:15.620 | So the first test case I do is to do 50 years of history,

01:09:20.620 | beginning with the 1928 data and go 50 years.

01:09:25.460 | So that's test case one, is the 1928 through 1978 data.

01:09:30.460 | And then for test case two,

01:09:34.980 | I'll start with 1929 and go through 1979.

01:09:39.380 | Test case three starts with 1930 through 1980 and so on,

01:09:44.380 | until we can't go any further without running out of data.

01:09:49.380 | So if I have a hundred years of history data

01:09:55.300 | and a 50 year lifespan,

01:09:57.060 | that means I can get about 50 years worth of,

01:10:01.700 | I can get 50 test cases.

01:10:03.860 | So that's fundamentally what this thing is doing.

01:10:07.580 | When I run a historical analysis,

01:10:11.380 | it uses the history data that's available.

01:10:14.000 | And based on the lifespan of the people we're modeling,

01:10:18.780 | it will do as many test cases as it can.

01:10:21.260 | And then it will present the distribution of results

01:10:24.300 | by percentile using these blue bands, like you see here.

01:10:28.580 | And in this case, the success rate is much lower at only 79%.

01:10:33.580 | Okay.

01:10:37.300 | So that is the fundamental analysis.

01:10:40.140 | Let me see, what I wanna do, hit on a few other things.

01:10:44.500 | - We have a question I can throw in here.

01:10:48.220 | Could you describe some of the major differences

01:10:50.140 | in the bronze and gold and maybe of the things

01:10:52.380 | you've covered so far and what you would see

01:10:54.540 | in bronze versus gold?

01:10:55.740 | - Oh, right.

01:10:56.580 | Yeah, sure, sure, sure.

01:10:57.940 | Bronze is a pretty high fidelity calculator as well,

01:11:02.940 | but it does not do detailed tax calculations.

01:11:08.500 | And it doesn't, it basically specify income stream

01:11:13.500 | by it starts here, it ends here.

01:11:15.860 | Here's the income.

01:11:16.980 | Here's how much it is.

01:11:18.260 | This is how much it inflates per year.

01:11:20.780 | And that's how you define income.

01:11:23.220 | Expenses is basically the same way.

01:11:25.620 | It doesn't get into these detailed, nuanced expenses,

01:11:30.180 | such as how to model property, mortgages,

01:11:33.020 | healthcare, and college educations, all that.

01:11:36.340 | You just list the expenses.

01:11:38.100 | When they start, when they end, are they fixed expenses?

01:11:42.100 | Do they inflate with inflation, change with inflation?

01:11:47.180 | And you specify the tax rate that you expect to use,

01:11:51.060 | the effective tax rate.

01:11:53.020 | And that's what it does, but it does generate RMDs.

01:11:58.020 | You don't have to specify what RMD is.

01:12:02.180 | It knows how to calculate RMDs.

01:12:04.060 | It does do Monte Carlo analysis.

01:12:09.780 | Though it's much simpler.

01:12:10.740 | It's much simpler.

01:12:11.580 | It runs much quicker than this one.

01:12:14.780 | It does not do the historical analysis.

01:12:17.820 | It does present the data in tabular form,

01:12:22.300 | as well as in graphical form.

01:12:25.180 | But it's a much, much simpler calculator,

01:12:28.460 | much easier to use.

01:12:30.780 | Both of these have a user manual that goes with them,

01:12:35.020 | the bronze manual, probably 20 or 30 pages.

01:12:39.500 | The gold manual is 180 pages.

01:12:43.860 | So this one, the gold will do Roth optimizations.

01:12:48.860 | Bronze will not.

01:12:52.820 | Gold will, it does detailed modeling

01:12:58.060 | of your social security.

01:12:59.860 | It will tell you the optimum age to start

01:13:03.460 | your social security, for both husband and wife.

01:13:05.980 | Bronze will not do that.

01:13:07.340 | So that's an overview.

01:13:10.340 | Does that generally cover what you wanted to hear?

01:13:14.900 | - Yes, very good.

01:13:16.140 | There are a few questions I could ask now.

01:13:18.060 | Someone said they opened up the bronze version,

01:13:20.140 | put Joe's age at 42,

01:13:21.820 | and they got a circular reference on Excel.

01:13:25.660 | I don't want to belabor that one,

01:13:27.180 | but just thought I'd mention it.

01:13:28.780 | - Oh, okay.

01:13:31.180 | Okay, I think I'm going to guess one.

01:13:38.580 | I know what it is.

01:13:39.940 | Yeah, one of the things that the bronze calculator does

01:13:44.580 | is it does iterative calculations on taxes.

01:13:47.620 | Gold does not.

01:13:49.100 | And if you do not have it set up to run,

01:13:51.900 | it's possible you have another Excel file

01:13:55.620 | that has come up and it's taken Excel

01:13:58.020 | out of the iterative calculation mode,

01:14:00.180 | you will get a circular calculation error every time.

01:14:03.620 | Because basically, if Excel does iterative calculations,

01:14:07.980 | it has circular references.

01:14:11.420 | But if it's in the iterative mode,

01:14:14.940 | it will iterate until it resolves the answer.

01:14:17.980 | So that's how we do it.

01:14:19.380 | So the calculation, the circular references

01:14:22.300 | are not a problem until you turn off iterative calculations.

01:14:27.300 | So if you-

01:14:28.340 | - All right.

01:14:29.180 | - Pardon me?

01:14:30.580 | - Yes, thank you.

01:14:31.420 | Okay.

01:14:32.940 | Second question.

01:14:36.340 | Second question, you may have covered it,

01:14:38.820 | I may have missed it,

01:14:39.660 | but could you describe anything about health care,

01:14:43.580 | premium tax credits or subsidies?

01:14:47.420 | - Yes, yes, yes.

01:14:49.740 | Let me go back to that.

01:14:54.660 | We're going over that maybe too quickly.

01:14:57.660 | I think premium tax credits and subsidies are synonymous.

01:15:06.300 | And so the subsidy depends on a few things.

01:15:11.300 | One of which is this benchmark cost

01:15:15.460 | of the silver plan cost.

01:15:19.540 | I don't know if I can quote with a term,

01:15:21.620 | it's the second lowest cost silver plan

01:15:24.540 | in your geographical area.

01:15:26.700 | And so that is taken into account.

01:15:32.460 | Also your modified adjusted gross income.

01:15:34.980 | You have got to be between one times and four times

01:15:38.820 | the federal poverty level to qualify for a subsidy.

01:15:42.220 | If you do qualify,

01:15:45.060 | then the tool will calculate your subsidy

01:15:48.940 | based on this number here

01:15:51.780 | and your modified adjusted gross income.

01:15:53.860 | So the Obamacare algorithm determines

01:15:58.860 | how much you're expected to pay for your insurance

01:16:04.300 | based on your magic.

01:16:08.500 | And so the tool does that behind the scenes here.

01:16:11.780 | - Yeah, thank you.

01:16:12.620 | I must've stepped,

01:16:13.820 | I had to take care of a personal problem.

01:16:15.420 | I must've just missed that slide.

01:16:16.940 | - So does that answer it for you?

01:16:18.260 | - Yes.

01:16:19.700 | Do you anticipate making some changes for this?

01:16:22.100 | There's just recently they passed some law last Thursday

01:16:24.620 | with raising the subsidy.

01:16:27.020 | Okay.

01:16:27.860 | Could you speak to that?

01:16:28.700 | - I have to familiarize myself exactly

01:16:30.380 | with what to change and then I will do it.

01:16:32.860 | - Okay, thank you.

01:16:34.340 | We have some questions about Roth conversion optimization.

01:16:38.100 | If you could demonstrate that or speak to it.

01:16:40.140 | - Yes, I was going to go.

01:16:40.980 | I was going to get to that.

01:16:42.420 | I was going to use a different example.

01:16:46.340 | I did a Roth conversion on this particular example,

01:16:50.020 | but it was not very,

01:16:51.020 | basically it's not very effective to do a Roth conversion.

01:16:55.220 | Let me show you real quick.

01:16:56.780 | So you do, that's what it falls under analysis.

01:17:00.740 | And there are some sub pages here.

01:17:03.980 | Plan Roth conversions is one of them.

01:17:06.140 | And again, it's oriented scenario one, scenario two,

01:17:11.180 | scenario three for both husband and wife.

01:17:14.260 | I need to get this thing out of the way again.

01:17:16.820 | So the input fields over here are for the husband.

01:17:29.140 | These over here are for the wife.

01:17:30.860 | Basically, you can either say,

01:17:36.780 | we're not going to do conversions.

01:17:38.940 | We're going to do, I'm going to click this,

01:17:41.380 | but you can do fixed duration conversions.

01:17:45.700 | We're basically just going to start.

01:17:51.740 | So there's three different options.

01:17:54.740 | We're not going to do any.

01:17:55.700 | We're going to do a fixed duration conversion

01:17:58.580 | or we're going to do a tax bracket up,

01:18:01.260 | tax bracket restricted conversion.

01:18:04.220 | So for this right here, we're showing fixed duration.

01:18:07.580 | It's going to start in a particular year.

01:18:09.860 | We're going to do this percentage

01:18:11.260 | of the tax deferred account.

01:18:13.100 | We're going to do it over a period of this many years.

01:18:16.620 | And that's what we're going to do.

01:18:20.380 | Meanwhile, you can do the wife

01:18:22.940 | and either do them or not do them also.

01:18:25.740 | Give you both fixed duration,

01:18:27.980 | but you can say independently of the husband,

01:18:30.980 | this is when she's going to start.

01:18:32.300 | This is how, what percentage of her account

01:18:34.340 | we're going to convert over so many years,

01:18:37.220 | three years, whatever, however many years you want to take.

01:18:40.300 | That's how you do it.

01:18:41.340 | If you do, incidentally, you can see,

01:18:47.140 | we just, I just did that and it changed it.

01:18:49.500 | And it said, okay,

01:18:50.620 | that made $126 difference over the long term.

01:18:54.820 | Not much difference.

01:18:55.740 | So now let's look at tax bracket restricted.

01:19:00.740 | The only thing that changed here is

01:19:04.180 | how many years you want to do it over.

01:19:07.420 | It is no longer a factor.

01:19:09.220 | It'll do it.

01:19:10.060 | It'll do it as quickly as it can,

01:19:11.980 | given the, how much you can put in the,

01:19:14.420 | how much you can do,

01:19:16.260 | given the limit of the tax bracket that you specified.

01:19:19.100 | Now we're here.

01:19:20.580 | We said, this is max tax bracket I wanted to use.

01:19:23.500 | I do not want to get out of the 22% tax bracket

01:19:27.340 | while we're still under TCJA.

01:19:29.620 | If we, once we get beyond that out in 2026,

01:19:34.220 | the 22% bracket is going to go away.

01:19:36.500 | It's going to be replaced with a 25% bracket.

01:19:39.380 | So you'll see the options in here have two different values,

01:19:43.780 | but basically there are seven,

01:19:45.580 | there's seven brackets that the dual is good.

01:19:49.780 | And depending on which tax law we're under,

01:19:53.140 | it's either 24% or 28%, 32%, 33% and so on.

01:19:58.140 | So you can, so in this case,

01:20:03.860 | we've said we're going to do 50% of the account

01:20:07.020 | starting in that year.

01:20:08.740 | With a limit of this 22% or 25% bracket,

01:20:12.260 | you can see the red line indicates

01:20:15.300 | the results of the projection.

01:20:17.460 | The fixed rate projection over time is worse initially,

01:20:22.620 | but it slowly gains ground because you're paying,

01:20:25.900 | now here you begin to pay less tax

01:20:28.300 | 'cause you've got the money out of the tax deferred account

01:20:33.300 | and the RMDs are lower, therefore the taxes are lower.

01:20:36.780 | So the Roth starts gaining ground.

01:20:39.420 | And ultimately though, it doesn't quite get there.

01:20:41.980 | So that's how that can be done.

01:20:44.940 | And then you can finally optimize it.

01:20:47.220 | And I'm going to just do that and we'll see what it does.

01:20:51.220 | I mean, when you do optimize,

01:20:52.900 | it does a husband and wife together.

01:20:57.220 | It uses the tax bracket restricted method

01:21:02.220 | and tries to figure out what percentage of the account

01:21:06.660 | gives the best result

01:21:07.900 | and which tax bracket gives the best result.

01:21:10.820 | And then it presents it here.

01:21:12.460 | In this case, it's saying converting 25% of the account

01:21:21.260 | is best, staying under the 10% bracket is best.

01:21:26.260 | It basically makes no difference.

01:21:29.900 | It's only a $2,800 difference over the long-term.

01:21:33.860 | However, that's using absolute dollars.

01:21:39.140 | The one thing we do know is that money in a Roth account

01:21:44.260 | is worth more than money that's in a tax deferred account.

01:21:47.420 | So the tool will recalculate based on

01:21:52.420 | the average marginal rate over your lifetime.

01:21:57.780 | And it will decide what are the effective

01:22:00.980 | number of dollars involved.

01:22:02.260 | In this case, the Roth conversion looks a little bit better

01:22:05.220 | but not still not very impressive.

01:22:06.980 | $16,000 better long-term.

01:22:09.980 | So anyway, this is not a very dramatic example.

01:22:14.380 | I do have a different one that I can use

01:22:17.300 | that let me go just do that, let me go just do that.

01:22:22.300 | - Yeah, let me check with,

01:22:23.820 | Margaret asked that question originally.

01:22:25.380 | Margaret, does that answer your question?

01:22:26.780 | Or do you have any detailed Roth conversion question?

01:22:29.500 | - I'd actually like to see the other case

01:22:32.300 | where you've got higher amounts in the tax deferred

01:22:37.300 | if you have something along those lines.

01:22:39.260 | - Yes, ma'am, I do.

01:22:40.260 | So let me, I'm gonna leave.

01:22:42.620 | I'm gonna go back to the homepage.

01:22:46.060 | I'm gonna go to this subpage called simplified inputs.

01:22:51.060 | And so this is what you might use if you're just gonna,

01:22:55.740 | I just brought up this really complicated tool.

01:22:58.060 | I really don't wanna read a hundred page manual today.

01:23:00.780 | I wanna put in some basic things

01:23:02.260 | like I might have a really simple calculator

01:23:04.700 | and I just wanna get started.

01:23:05.780 | I wanna kind of see how it goes.

01:23:06.940 | So this is what I'm gonna use for this example.

01:23:09.180 | So again, just 3%, 3% inflation,

01:23:13.340 | $2 million in a tax deferred account.

01:23:16.540 | And in a couple of it's already basically retired.

01:23:21.540 | So I'm gonna go ahead and tell it to go ahead

01:23:27.660 | and populate the tool with these simple inputs.

01:23:30.380 | And it's, are you sure you wanna do it?

01:23:31.780 | Yes, I wanna do this.

01:23:34.380 | So right now it's populating those pages

01:23:37.180 | we already looked at with this simple data.

01:23:39.940 | It's eliminated everything I put in before.

01:23:43.220 | Put in the case, it says it's done.

01:23:46.700 | Now we're gonna go do the homepage

01:23:49.500 | and just take a quick look.

01:23:51.340 | Here's the initial balances.

01:23:54.020 | Now you can see we've got the $2 million in tax deferred,

01:23:57.460 | 500K in regular.

01:24:00.660 | And now let's go back over here.

01:24:02.460 | And let's start just by running an analysis.

01:24:08.820 | Let's see, you know, with no Roth conversions,

01:24:11.220 | let's see what this looks like real quickly.

01:24:13.420 | Okay, we're doing, okay, that's a historical analysis.

01:24:18.820 | I'm gonna switch and do Monte Carlo.

01:24:22.900 | Okay, now let's go do a Roth conversion.

01:24:32.820 | All I gotta do is come here and click optimize.

01:24:39.540 | (mouse clicking)

01:24:42.300 | First thing it does is it doesn't really know

01:24:46.300 | what you've already done in Monte Carlo analysis

01:24:48.380 | to compare to, so it's gonna do that first.

01:24:51.220 | So that's what it just did.

01:24:52.420 | Now it's working on the optimization

01:24:55.100 | and the Roth conversion.

01:24:56.580 | It's saying here the Roth optimization

01:25:05.540 | does yield better results than not doing it.

01:25:09.220 | And get that out of the way.

01:25:12.100 | In terms of, okay, it's quite a bit better this time.

01:25:15.020 | That's still in terms of the effective dollars.

01:25:18.300 | Let's look in terms of absolute dollars.

01:25:21.300 | Okay, so this is just count all dollars same.

01:25:24.340 | A dollar in tax deferred is just as good

01:25:26.540 | as a dollar in Roth in this particular graph.

01:25:31.540 | You can see, so the blue line is the baseline.

01:25:34.580 | The red line is the what if line

01:25:36.020 | if we actually do this Roth conversion.

01:25:38.060 | That's what it's gonna look like.

01:25:40.060 | So you can see there's a crossover point

01:25:41.740 | out there in 2043 or so.

01:25:45.300 | All of a sudden now from that point forward,

01:25:47.340 | the Roth is better.

01:25:49.060 | It falls behind initially

01:25:50.460 | because we got the big tax bill to pay

01:25:52.820 | as we do the conversions.

01:25:54.700 | But now we're gaining ground

01:25:56.140 | because we have less taxes to pay

01:25:58.100 | because of the lower RMDs.

01:26:00.180 | So it goes on and gains and keeps on gaining

01:26:03.100 | from there on out.

01:26:04.940 | And one thing that I'll point out here

01:26:06.820 | is that I think the key is

01:26:09.540 | that we have to get apples and apples.

01:26:14.540 | We got the same rate of return

01:26:16.900 | across all of these accounts.

01:26:18.540 | You could make this example look really bad

01:26:21.700 | if you had a great rate of return on a tax deferred

01:26:24.860 | but a poor rate of return on the Roth account.

01:26:27.420 | In this case, we're talking apples and apples.

01:26:31.380 | So you can see that over time,

01:26:33.820 | the Roth account gets ahead.

01:26:36.340 | But if we look in terms of effective dollars,

01:26:39.180 | it's ahead from the get-go

01:26:41.380 | and stays ahead by the amount of 400

01:26:44.620 | and then ultimately ends $400,000 ahead.

01:26:47.300 | So is that a better example?

01:26:56.420 | - Yeah, that's much better.

01:27:01.220 | So do you then produce some kind of a year-by-year chart

01:27:06.220 | that will show how much is being converted each year

01:27:11.260 | and what tax brackets it's optimizing on?

01:27:13.580 | - Yes, as under the tabular projections.

01:27:18.460 | Let's go back to...

01:27:20.220 | Gotta get this thing out of the way again.

01:27:30.580 | Withdrawals.

01:27:31.660 | Here are those Roth conversions.

01:27:42.020 | This is the amount every year.

01:27:47.140 | In today's dollars,

01:27:49.260 | there's the amount in future year dollars.

01:27:51.500 | Let's see, let's look at the taxes.

01:27:55.740 | Let's see, it said...

01:27:57.540 | Let me refresh my memory here.

01:27:59.540 | It said the 12 to 15%, 12 or 15% bracket.

01:28:04.540 | And you can see, and that is what it is.

01:28:11.380 | And out here is actually years up every dollar

01:28:18.140 | in that bracket, in those brackets.

01:28:26.900 | And so the amount of taxes.

01:28:30.660 | So the federal income tax, let's see.

01:28:35.660 | I'm gonna have to...

01:28:39.300 | To do what I wanna do,

01:28:40.140 | I gotta bring those Excel menus back to the top,

01:28:42.780 | but I wanna use the tool to add these numbers for me.

01:28:46.060 | So with the Roth conversions going on,

01:28:53.700 | the taxes pays $417,000.

01:28:57.980 | But if we come back over here

01:28:59.620 | and turn off those conversions,

01:29:03.540 | and go back,

01:29:08.060 | we can see now we're paying $768,000

01:29:12.980 | in federal income tax.

01:29:14.300 | So that's why the Roth conversion is advantageous.

01:29:20.620 | It reduces those taxes substantially.

01:29:24.060 | (mouse clicking)

01:29:27.060 | And so here's what the accounts are doing.

01:29:29.980 | The tax deferred account begins.

01:29:34.700 | Oh, excuse me.

01:29:36.140 | I gotta go back and turn that on again.

01:29:38.140 | Okay, we're back to that.

01:29:45.860 | And so we start off with $2 million

01:29:49.220 | in the tax deferred account.

01:29:51.260 | And then the Roth account is coming up here.

01:29:56.260 | You can see it's getting bigger and bigger as we go.

01:30:02.260 | And if you wanna do,

01:30:05.020 | you could put these on the same page.

01:30:06.700 | I don't currently have them on the same page,

01:30:09.220 | but you could get them on the same page

01:30:11.820 | with this view management.

01:30:13.220 | I'm just gonna demonstrate that for you right quick.

01:30:19.580 | I think I'll put on the accounts page.

01:30:21.620 | I'm gonna come over here.

01:30:22.460 | I'm gonna find that, those Roth conversions.

01:30:27.460 | Let's see if I can find it.

01:30:29.020 | (mouse clicking)

01:30:32.980 | Okay, here it is.

01:30:48.620 | Okay, so I've added that to the accounts page.

01:30:53.060 | Go back to it.

01:30:55.580 | And here are those Roth conversions here.

01:31:02.780 | As you can see, it messed up the headers.

01:31:05.500 | It does do this.

01:31:06.340 | Anytime you add data, you have to redo the headers.

01:31:09.900 | For now, just delete them.

01:31:15.620 | But if I wanna put these, so you can see,

01:31:18.060 | there's the tax deferred account.

01:31:20.060 | There's the Roth account.

01:31:21.540 | Here are the Roth conversions.

01:31:23.340 | I wanna move them over there where I can see it.

01:31:26.220 | Let's just put all these together.

01:31:28.220 | So there you go.

01:31:33.620 | There's the tax deferred account going down,

01:31:37.260 | Roth accounts going up,

01:31:38.460 | and these are the conversion amounts.

01:31:41.300 | (mouse clicking)

01:31:44.060 | Anything else in that regard?

01:31:50.980 | - Joel had a couple of follow-up questions.

01:31:52.820 | Joel, do you wanna explain your questions?

01:31:55.500 | - Sure, can you hear me?

01:31:59.100 | - Yes.

01:32:00.620 | - Great.

01:32:01.460 | So I've kind of built my own Roth conversion engine.

01:32:07.180 | And what I found was sort of a mixture of things

01:32:10.660 | worked best in my case.

01:32:12.820 | So I started retired at 58.

01:32:16.620 | So I had like five years where I could convert

01:32:20.060 | to a higher tax bracket and not worry about IRMA.

01:32:23.420 | But after IRMA hits, then I kind of went and said,

01:32:27.540 | "Okay, for the next 10 years, I wanna convert to 22%."

01:32:31.340 | But for the first five years, I wanna convert for 24%.

01:32:35.380 | And so I wanted to be able to mix and match

01:32:37.860 | a little bit more than what I saw in your demo.

01:32:42.860 | So I was wondering, is that capability there

01:32:46.460 | or is that maybe a future enhancement?

01:32:50.180 | - Partially, I'll show you one.

01:32:51.580 | Let's go back 'cause I skipped over that.

01:32:53.660 | It will let you specify an IRMA limit.

01:32:58.740 | It won't let you pick a different marginal tax bracket.

01:33:04.500 | It will go with one or the other.

01:33:06.060 | I mean, it would go with only one.

01:33:07.380 | You cannot change that.

01:33:08.980 | So yes, maybe a future enhancement for now.

01:33:11.660 | It's only one.

01:33:12.500 | However, it does let you specify the maximum IRMA bracket

01:33:17.500 | if you choose to.

01:33:19.060 | Right now it says there's no limit,

01:33:20.540 | but if you want to limit it in there

01:33:24.260 | so that Roth conversions don't drive

01:33:26.820 | your Medicare costs up, you can do that.

01:33:33.540 | - Okay.

01:33:34.460 | - It partially does what you ask, I think.

01:33:37.180 | - Okay.

01:33:38.340 | Yeah, I mean, this is a,

01:33:39.500 | Roth conversions are really tricky, tricky thing.

01:33:43.420 | - Indeed.

01:33:44.260 | One thing I failed to mention is that

01:33:48.620 | they always give respect to the ACA subsidies as well.

01:33:53.620 | A Roth conversion will never cost you a subsidy.

01:33:59.340 | So it will take it right up to the limit,

01:34:01.260 | but it won't take you that $1 over,

01:34:04.260 | such as you lose that Obamacare subsidy.

01:34:07.260 | It'll do everything it can.

01:34:08.660 | It'll get right up to the edge

01:34:10.420 | until you're no longer eligible for the ACA.

01:34:14.820 | When you've gone on Medicare, for example,

01:34:17.300 | then it'll go ahead and ease the Roth conversion.

01:34:19.700 | - Okay.

01:34:22.340 | And then sort of the second follow-up was,

01:34:24.940 | (audio cuts out)

01:34:27.700 | on equities.

01:34:34.420 | And the IRA would certainly be mostly bonds.

01:34:39.420 | So there would certainly be a difference

01:34:44.260 | in rate of return expected between the two.

01:34:47.220 | Assuming you guys are doing sort of a boggle head

01:34:53.100 | tax advantaged, tax aware analysis.

01:34:58.100 | It seems like that would be a good thing to assume

01:35:02.940 | is a Roth would have a higher rate of return than your IRA.

01:35:07.380 | Or am I not thinking about that correctly?

01:35:11.500 | - I'm an engineer, not an advisor.

01:35:17.100 | So I basically don't go there,

01:35:18.660 | but you can definitely do that.

01:35:19.940 | If that's what you think is right,

01:35:21.100 | you can most assuredly do it.

01:35:23.580 | - I did it this way.

01:35:24.980 | I just said, just kept a level playing field

01:35:27.500 | just so we could just see what the absolute--

01:35:32.500 | - Yeah, there's another tool IRRP

01:35:35.180 | where we have to do that level playing field.

01:35:38.100 | Otherwise the analysis kind of goes wonky

01:35:41.780 | when you try to optimize.

01:35:44.100 | And I was just curious that if you kind of kept it true

01:35:50.980 | where Roth would have a higher rate of return,

01:35:54.020 | how would that change your optimization then?

01:35:57.300 | - Well, it would use a higher rate of return.

01:36:03.860 | It would just go, I mean,

01:36:05.780 | the optimization will take that into account.

01:36:08.700 | - So what we see in IRRP is it really jacks up

01:36:13.700 | the Roth conversions quite a bit above

01:36:18.540 | what would seem to be practical

01:36:21.580 | because it's chasing that extra return

01:36:25.260 | as part of the optimization.

01:36:26.900 | So I think it might be interesting to sort of,

01:36:31.300 | if you could quickly demo or talk to it,

01:36:34.580 | how it would handle that.

01:36:38.340 | - Let me do it.

01:36:39.540 | Well, let's just say we're gonna go 100% stocks,

01:36:43.260 | 0% bonds.

01:36:44.940 | - Yeah.

01:36:46.100 | - Let's see.

01:36:47.940 | Okay, this was my selling.

01:36:50.460 | I gotta go over here and make a quick change.

01:36:52.860 | We'll say, what did we say?

01:36:54.020 | 5% stocks, real return 5% stocks?

01:36:57.140 | - Yeah.

01:36:57.980 | - Bonds that good?

01:36:59.460 | - Sure, good enough.

01:37:00.780 | - Okay.

01:37:01.620 | So that gives us an overall real rate of return

01:37:05.420 | on the Roth account of 5% versus 3.5% on tax deferred.

01:37:09.780 | - Right.

01:37:11.660 | - Fair enough, okay.

01:37:13.580 | Now let's go see what we can do.

01:37:15.900 | - Um.

01:37:16.740 | - Let me just interrupt you for a second.

01:37:21.300 | Norman, are you saying you're gonna be starting

01:37:23.900 | in about, what, 18 minutes?

01:37:26.620 | - Yes.

01:37:33.020 | - Okay, we'll be done in eight, we'll make,

01:37:35.340 | we have a shared account here, which we're using.

01:37:37.940 | So we gotta wrap this up at 18 minutes

01:37:39.940 | because the San Francisco group is gonna be starting

01:37:42.660 | their meeting on real estate.

01:37:45.220 | And in fact, if Norman,

01:37:46.340 | if you wanna put the link out there,

01:37:47.700 | if anybody else wants to join into that one,

01:37:49.900 | but I'm gonna let Stuart follow up here.

01:37:54.740 | And then I wouldn't mind if Bob,

01:37:56.420 | if you would talk about how you use the tool

01:37:58.340 | because you helped orchestrate this whole meeting

01:38:01.020 | after Stuart finishes the Roth stuff.

01:38:06.980 | - Sure.

01:38:10.500 | (mouse clicking)

01:38:13.260 | Okay, so I just reran that example.

01:38:27.260 | You can see that, yeah, the difference is huge.

01:38:29.660 | That was a five and a half million dollar advantage

01:38:33.780 | in terms of effective dollars,

01:38:36.100 | or almost five and a half million dollars

01:38:39.020 | in absolute dollars.

01:38:40.380 | When you're getting a much better rate of return

01:38:44.740 | on the Roth account.

01:38:45.740 | - And did that, how did that change?

01:38:50.860 | What targets it picked for the optimization?

01:38:54.100 | - It went and said 90, switching 95% of the account

01:39:01.380 | and going up to 32, 33% on the tax bracket was the best.

01:39:05.620 | - Okay, so it really jumped up the tax bracket

01:39:08.060 | and the amount that it converted.

01:39:10.260 | - Yes.

01:39:11.100 | - Interesting.

01:39:13.060 | - But what it does,

01:39:13.980 | it just simply runs through all the possibilities

01:39:17.540 | and then it looks and sees which one's best

01:39:19.740 | and presents it.

01:39:23.500 | - Got it.

01:39:25.820 | - And then if you leave this page like this,

01:39:29.340 | that's what the model is gonna assume

01:39:31.820 | and all the other, anywhere else you go, this is it.

01:39:36.900 | So if you just want to play with it,

01:39:38.500 | didn't want to leave it there,

01:39:39.780 | then you got to go back and take it out of this mode.

01:39:43.420 | So just rotate between these three options.

01:39:47.340 | Okay.

01:39:49.340 | Is there anything, other questions

01:39:55.100 | or shall I show you just a couple more things or?

01:39:57.860 | - How about Bob, you take a minute

01:40:02.020 | and explain your situation in life

01:40:05.300 | and why you like the tool?

01:40:06.860 | - Oh, sure.

01:40:07.780 | - What features you use?

01:40:09.980 | - Bob, shall I stop sharing?

01:40:12.220 | - You can just leave that up.

01:40:13.300 | I'll just talk for a second.

01:40:14.900 | Right, I had initially planned

01:40:19.300 | when I purchased the tool in the last year

01:40:22.100 | to retire in June of this year and decided not to,

01:40:24.980 | but this is one of the things that happened to work.

01:40:27.340 | But I wanted to, my wife is already retired

01:40:30.460 | and I wanted to have confidence that we were making the,

01:40:33.860 | you know, I was under the impression from other tools

01:40:37.780 | that we were financially independent,

01:40:39.260 | but I liked some of the videos

01:40:43.780 | that I watched about ProLana Gold.

01:40:45.700 | And I think I've mentioned in the last meeting

01:40:48.060 | that can I retire now?

01:40:50.460 | Darren Kirkpatrick is a big fan.

01:40:52.420 | He's done reviews of all a number

01:40:54.700 | of different retirement calculators.

01:40:57.780 | And he is a huge fan of ProLana.

01:41:02.580 | And I wanted to ask Stewart, where did the name come from?

01:41:06.180 | - ProLana?

01:41:07.020 | - Yeah, what is ProLana?

01:41:08.460 | Does it have a meaning or?

01:41:09.980 | - Yeah, it's my great-grandmother's given name.

01:41:14.860 | - Oh, okay.

01:41:16.020 | - I was doing some genealogy work

01:41:17.780 | and I was spending a lot of time dealing with her

01:41:21.100 | when I started this business.

01:41:22.820 | And I was like, well, obviously I need a name.

01:41:24.580 | Well, I used it.

01:41:25.420 | - Well, you know, I've used it because,

01:41:28.940 | well, it modeled all our different income streams.

01:41:32.500 | I have a pension.

01:41:33.340 | My wife will have a pension.

01:41:34.940 | I haven't taken mine yet,

01:41:36.540 | but the tax effects of those things, social security.

01:41:41.020 | We own, have bought property

01:41:45.140 | where we plan to build a house.

01:41:46.540 | I modeled that.

01:41:47.820 | Some things that Stewart didn't show

01:41:52.020 | and he modeled some things that my kids are out of college.

01:41:55.780 | So 529 plans aren't relevant to me.

01:41:58.700 | I have health insurance through my retirement system.

01:42:03.700 | So I just, especially this page we're looking at now,

01:42:08.820 | this is something I was really concerned about

01:42:10.660 | because a lot of our, the vast majority of my assets

01:42:14.020 | are in our two tax deferred accounts,

01:42:17.060 | my 401, 403B and my wife's 401K.

01:42:20.940 | So this gave me doing the various scenarios

01:42:26.460 | and just playing with what ifs, more confidence.

01:42:31.340 | I mean, I had used IORP and FireCalc

01:42:35.660 | and some of the other free tools.

01:42:37.220 | And there's, you know, and the one that's available

01:42:41.700 | through the Bottlehead site, which retirement--

01:42:48.060 | - I think it's a retiree portfolio model or something.

01:42:51.100 | - Yeah, retirement portfolio model.

01:42:53.540 | That I've used all of them.

01:42:54.580 | They all have some, just like anything,

01:42:59.580 | have advantages, disadvantages,

01:43:02.060 | but I really liked and still continue to like PraLana.

01:43:06.940 | And I think I told this story last time

01:43:09.280 | that I started using it and I ran across an issue

01:43:13.780 | where it looked like my state tax for my pension

01:43:16.180 | wasn't being calculated right.

01:43:18.180 | I fired off an email and within an hour,

01:43:22.100 | I think Stuart answered it himself,

01:43:24.660 | telling me, you know, basically he answered the question,

01:43:27.820 | but he said it was in the manual very politely.

01:43:31.140 | And then from that point on, I started reading the manual,

01:43:34.180 | which has got, I mean, who writes 180 page manual anymore?

01:43:39.180 | But if you wanna know something about how the tool works,

01:43:43.320 | it's in the manual.

01:43:44.980 | And so I've made a point of reading the manual a lot more,

01:43:50.180 | but I think I've said enough.

01:43:52.360 | - Okay, one thing, a question came up

01:43:55.140 | and I think we should end this meeting in about six minutes.

01:43:58.700 | That'll give the San Francisco group

01:44:02.540 | about five minutes before, sorry to push against that.

01:44:06.180 | They've also included the Zoom link in the chat.

01:44:08.900 | So if anybody's interested in that,

01:44:10.820 | but the question that was two questions for Stuart.

01:44:14.060 | One, could you explain how the purchase licensing

01:44:17.500 | ongoing changes works in the future?

01:44:20.240 | - Yes, it's done on an annual basis.

01:44:23.860 | You buy the tool, I set it for $99.

01:44:28.140 | It's been $99 for years.

01:44:30.020 | I don't really anticipate changing that.

01:44:32.500 | And then it's always developed and released

01:44:36.060 | on a calendar year basis.

01:44:38.780 | So 2020, 2021, I'm releasing early January,

01:44:42.980 | as early as I can.

01:44:44.420 | And then I make updates throughout the year.

01:44:46.420 | If I need, if I find bugs, I fix them.

01:44:49.220 | I fix them as quickly as I possibly can.

01:44:51.060 | I put out a new version.

01:44:52.740 | You're in, if you're on the 2020, that year's license,

01:44:56.580 | you get all the updates for free, of course.

01:44:59.180 | And then I charge, I give a 50% discount

01:45:04.180 | to upgrade from one year to the next.

01:45:06.980 | So if you've got a license for 2021,

01:45:10.260 | you can upgrade to the 2022 model for $49.

01:45:15.540 | And as long as you keep, you keep up every year,

01:45:18.100 | it'll be $49.

01:45:19.740 | And then you get the new model

01:45:22.420 | and all the updates that come along with it.

01:45:25.020 | And I generally do not put out enhancements during the year.

01:45:28.980 | I just fix, I just fix problems that I discover

01:45:32.500 | or that someone discovers and brings to my attention.

01:45:34.820 | I fix them.

01:45:35.980 | And the tool is, as you can see, it's quite complex.

01:45:40.780 | There's a lot of data to enter into.

01:45:42.380 | It has the ability to export your data from one copy

01:45:47.380 | and import it into another copy.

01:45:50.860 | So it's relatively easy.

01:45:52.380 | It's not, it's not nothing, but it's relatively easy.

01:45:57.380 | Download the new model, import the data

01:46:00.700 | that you exported out of the previous one.

01:46:02.980 | And it's, compared to the way it used to be,

01:46:05.340 | those imports and exports run really quickly.

01:46:08.580 | - Okay, thank you.

01:46:09.660 | - They take several seconds.

01:46:11.020 | Can you spend four minutes and talk about

01:46:12.900 | the study sensitivities and optimization tabs?

01:46:16.140 | - Oh, yeah.

01:46:16.980 | So I like to go back to, I'm going to go back.

01:46:21.940 | I'm going to do what I just talked about, import.

01:46:23.580 | I'm going to import the file.

01:46:26.820 | Let me get back to where we started from.

01:46:29.340 | You're going to see exactly how long it takes

01:46:30.860 | to do an import.

01:46:31.700 | That's what I'm doing right now.

01:46:33.140 | Okay, that's it.

01:46:38.460 | It's done.

01:46:40.700 | I'm going to quickly go over here.

01:46:41.820 | I'm going to do, I'm going to rerun

01:46:45.020 | the analysis real quickly.

01:46:46.700 | Okay, I'm going to go to optimization.

01:46:55.940 | What I'm going to do run for you is optimize

01:46:58.820 | social security start ages.

01:47:00.540 | And this is not to say, this is the,

01:47:03.060 | it's not going to give you the ages where you,

01:47:05.020 | this is not going to give you the age

01:47:08.340 | at which you earn the most money.

01:47:09.900 | It's going to be the ages that result

01:47:11.700 | in the greatest savings at the end of your life.

01:47:14.900 | And so it's presented in this matrix.

01:47:17.100 | And the best answer is this dark green box

01:47:21.340 | in this matrix.

01:47:22.180 | So that's with Joe, when Joe is 68

01:47:25.220 | and Jane's start age is 65.

01:47:27.380 | That yields the greatest savings

01:47:30.340 | at the end of the modeling period.

01:47:32.100 | And, but these lighter green squares indicate

01:47:37.140 | choices that are almost as good.

01:47:39.580 | In this case, they're 99% as good.

01:47:42.140 | We say, well, what about the ones that are 98% as good?

01:47:44.660 | Let's look at that.

01:47:45.900 | Okay, there's a bunch more to pick from.

01:47:48.580 | Okay, so that's one.

01:47:49.580 | Now let's look at study sensitivities.

01:47:52.340 | It's this page here.

01:47:53.340 | So here is the fixed rate returns

01:47:56.820 | that was established when I ran the analysis

01:47:58.860 | just a while ago.

01:48:00.340 | And so now we can, we can do some what ifs.

01:48:02.700 | It lets you look at the effect of changes

01:48:08.180 | in the key parameters in the model.

01:48:10.140 | And the key parameters in question

01:48:12.180 | are the ones that are listed down here.

01:48:14.140 | And so let's look at, so here when I ran the analysis,

01:48:20.180 | it saved the setting of each of those parameters

01:48:23.540 | in that gray row right there.

01:48:26.100 | And so if I want to change those,

01:48:28.020 | I just click this up or down button here.

01:48:30.140 | So if I want to change inflation from three, raise it up,

01:48:34.140 | there's 3.1.

01:48:34.980 | And you can see that did have an effect

01:48:37.660 | at the end of the model, it made a $10,000 difference.

01:48:41.660 | I keep clicking it and you can see it's getting worse.

01:48:45.460 | Now let's go back, let's revert back

01:48:47.220 | to where we started from.

01:48:48.540 | What about if I earn more money on my regular savings?

01:48:51.780 | I'm clicking it up at just a 10th of a percent,

01:48:56.180 | but across the whole span of the model,

01:48:59.060 | you can see what that's doing.

01:49:03.220 | What about if I don't earn as much on Roth?

01:49:08.220 | Well, let's see.

01:49:09.980 | Well, right now I don't have a Roth conversion in,

01:49:12.180 | so if I click this, it won't have any effect.

01:49:14.420 | What about Joe's retirement age?

01:49:19.700 | He's planning to retire in 2024.

01:49:21.340 | What if we add some to it?

01:49:23.100 | Like, whoa, that makes a difference.

01:49:26.580 | If it works another year,

01:49:28.460 | it adds quite a bit of difference only at the end.

01:49:31.980 | Okay, but what about social security?

01:49:34.340 | Over here, I just said that the optimum answer

01:49:38.100 | is 68 for Joe and 65 for Jane.

01:49:41.940 | Let's see if this agrees.

Bogleheads® Chapter Series – Pralana Retirement Calculator

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