Welcome to the Bogleheads Chapter Series. This episode was hosted by the Chicago Virtual Chapter and recorded March 18, 2021. It features Stuart Matthews, the designer and developer of the Prolano Retirement Calculator. Bogleheads are investors who follow John Bogle's investing philosophy for attaining financial independence. This recording is for informational purposes only and should not be construed as investment advice.

This is one of the user worksheets that's just part of the Prolano gold calculator. And in it, I've just entered a summary of this scenario that I've built. So let me quickly step through this so you'll have some idea of where I'm going with this demonstration. This is just one example.

It's not a trivial one, but it can do far more complicated things than this. So just take it from the top. The demographics, we're talking about a married couple whose ages are 57 and 55. They currently live in Maryland, and they plan to relocate to Texas whenever they retire in several years.

The general inflation rate assumed is 3% with health care expenses inflating at 2% above that. As far as the federal-- the calculator does detail federal and state tax calculations. So the federal tax law assumed is currently the Tax Cut and Job Act of 2017 up until its sunset year of 2026, at which time it reverts back to the pre-TCJA of 2017 laws, with the tax that was corrected for that year, 2026.

The initial balances of the accounts in question here are 525K in the husband's tax deferred accounts, 150K in the wife's tax deferred accounts, 225K in regular investment accounts with a cost basis of 170K. They have 10K in checking and savings accounts, and 50K in a 529 plan for their children's education.

As far as their portfolio is concerned, they have asset classes of money markets, stocks, and bonds with real rates of return of minus 2%, 5%, and 2.5% respectively. And then the allocations for these accounts are all the same. They're 60% stocks and 40% bonds until the retirement date, after which they get a little bit more conservative and go with 10% money market, 40% stocks, and 50% bonds throughout their retirement years.

As far as income is concerned, he earns 150K currently, increasing at 3% a year, which is at the inflation rate, until his retirement date, which will be May 1st of 2024. During this time, he'll be making personal contributions to his 401K of 12.5K with a company match of 6,250.

She'll be earning 40K, increasing 3% a year until her retirement date, which is the same as her husband's. She'll be making $4,000 contribution to her 401K with no company match. When he retires, he'll have a part-time job until he turns 67. And he'll be self-employed in this job. And he'll earn 10K a year, increasing at 3% per year.

Also, at the time of his retirement, he'll receive a $50,000 fixed pension, which is to say it doesn't have any COLA associated with it. It begins on his retirement date. And he will have a 50% survivor option should he die before his wife. In terms of Social Security benefits, he'll earn $30,000 a year at his full retirement age of 67.

And she'll earn $222,000 per year at her full retirement age, which is also 67. However, he'll be delaying his benefits until he reaches 70. But she'll go ahead and start hers at 67. In 2030, they anticipate an inheritance of 100K in a brokerage account from his parents, as well as his dad's $50,000 IRA.

And then she'll do some part-time work. They'll hobby and earn $2,500 a year from age 55 to 60, which will be taxed as ordinary income. In terms of expenses, they currently own a home, which they're still paying for. And they'll be downsizing at the time of their retirement. So they purchased this home in 2010 for 300K.

It's now appreciated up to 400K. They still have an outstanding mortgage at $79,500 at 4.5%, a monthly payment of $13.38. They do have property taxes, insurance, maintenance, and utilities, which add up to about $15,100. They'll be selling that house when they retire. And downsizing for a house that is worth $300,000 in today's dollars.

And then they'll leave it in there thereafter. And its operating cost will be $13.9K. They have two cars currently. And they generally plan to replace them every 10 years. They've got two children, which are about to start a four-year tour of duty in college, which costs $25,000 per year each.

And the first of those will be paid for by a 529 plan. The other would be paid on the fly. Health care costs are being modeled here. And they will be varying substantially as they transition from their working years into their Medicare years. They'll start at $3,000 a year while they're both still working through a group insurance plan.

But that will peak up substantially higher when they retire. And they'll go on to Obamacare. And their premium will be $15,000 a year prior to any subsidy. And we'll talk about that a little bit more when we get to it. And then eventually, this will taper off as they both go on to Medicare.

And I'll show you how that works. Their discretionary expenses will be $25,000. And in today's dollars, during their working years, and it'll go up to $35,000 in their early retirement years as they do a substantial amount of traveling. And then it'll drop off to $22,700 in late retirement. Now, should one of them die early, these expenses will be cut by 40% upon that death.

They also intend some one-off expenses to fund the marriage of their children. They're anticipating $15,000 in today's dollars for their son in 2027, $25,000 for their daughter in 2030. Finally, they have a charitable contribution of $10,000, which will become a qualified charitable distribution when he reaches age 70. So what I want to do here is just model, show you how this is modeled in Perlina Gold, then do a baseline analysis of the probability of this couple reaching the end of their expected lifespans without running out of money.

Then we'll do some other things. We'll do a quick bear market analysis on their plan. We'll do a Roth conversion at some point. We'll show you how they can optimize their Social Security start ages. I'll tell you what ages they plan, but there might be better dates. We'll take a look at that.

Then we'll look at the sensitivity of their plan to changes in key variables, like rates of return, inflation, et cetera. Then we'll do a couple of what if scenarios, like an early death, loss of the pension. And then finally, we'll just look at how the tool can deal with alternate spending strategies.

What I did here was show you specifically what they plan to do, but there's other ways the tool can do spending strategies as well. So with that as the scenario that I wanted to show you how we model, I'm going to jump over to the calculator itself. And I just took a shortcut, and here it is.

This is the home page. So the calculator, again, as I said, does not take you by the hand and walk you through. You have to think your way through this thing, but it's organized logically, and it's broken down functionally. And you navigate among those functions by this navigation bar at the top of the page.

So the home, financial assets, income, and expenses functions are primarily input functions. And then the tabular projections, graphical projections, and reports are primarily output functions. And then the analysis function is a combination. It's got some inputs, and it's got some outputs. And that's where we're going to find the Monte Carlo analysis and the historical analysis.

Social security, start age optimization, Roth conversions, and other things. So we're going to just start off on it. It's going to walk through this thing left to right, starting with the home page and walk through these various functions to show you how the scenario that I just described is input here.

So again, I said this is Excel. You can see the Excel menus at the top, and it's basically table-oriented. But it's designed such that we don't need any of these Excel menus at the top, so I'm going to get rid of them by clicking this link right here. It says hide those Excel menus.

Boom, they're gone. OK, we don't need them. OK, so we're talking about a married couple here. So this is a toggle button. If they were single, if Joe was single, we just click that. And if Joe, he's single, it would gray out the boxes associated with his wife. But right now, we're going to bring Jane back.

So you see the names are Joe and Jane. These are their birthdates. And then the tool calculates their age based on this birthdate. This is their age on January 1 of 2021, which is the year we're going to begin this model. So basically, this page is collecting some very fundamental assumptions, such as their life expectancies and then their assumptions relative to inflation and taxes.

And I didn't mention up front, but the two models, three independent, at least large, mostly independent scenarios simultaneously. And you'll see most of the pages that we're going to walk through have the inputs for that function for that scenario listed side by side. So this part of the table here are the inputs for scenario one.

These are the inputs for scenario two. And these are the inputs for scenario three. So for a given scenario, the tool has to collect inputs across all of these functions. We need to give it these basic assumptions. We need to talk about the financial assets, the income, and the expenses.

So each page contributes some part of a given scenario. Again, they're free. And you can name them down here at the bottom. So this is a short name. And whatever these short names are, it appears here. And you'll see that repeated on most of the other pages. You can put a longer description of each scenario here just for your own reference.

Now, I did say up on the-- when I was defining the scenario, the tax law, in effect, is the Tax Cut and Job Act of 2017. So and that is going to revert back to the prior law in the year listed here. So it's 2026. But if you think that's not going to happen, you can change it to whatever date you want it to be.

You can delete it. And then the TCJA of 2017 will go on forever. OK, so that is basically what we do on the home page. And so then I'm going to move on to the next page, which has to do with financial assets. And here, you're going to see that there are some additional pages which fall under financial assets.

Initial balances, management, asset classes, and so on. So the first-- and I'm just going to walk through them. I'm not going to do all of these. I'm going to hit the ones that are pertinent to our example here. These are the initial account balances. So the items in gray are the account types that Prolano Gold models.

So there are the tax deferred accounts for Joe, for his wife, then his joint Roth accounts. They're treated as joint by the calculator. Regular investment accounts, inherited accounts, and they can be traditional and Roth for husband and wife. And then your cash accounts, such as your checking and savings accounts, qualified tuition plans, 529 plans, and then health savings accounts.

So these are the entities that are modeled by the tool, the ones that I'm selecting here. But each of them here contains additional sub-accounts that you can enter here. And these are strictly here to help you enter in your initial balances. It does not actually model these sub-level accounts.

It only models the total account here. But initially, I said the-- so here is the 425K in Joe's account. There's 100K in his wife's account. 225K in the regular investment accounts, of which there is a-- there is some cost basis here. So there is currently $55,000 of unrealized capital gains as part of this 225K in these accounts.

There are no inherited accounts as of the start of the model. And there's $10,000 in the checking and savings, and there's $50,000 in the 529 plan, for a total starting balance of $785,000. OK, I'm going to move now to the Management page. There are a number of things that can be done on this page.

The one that I'm going to just focus on briefly is the Withdrawal Priority Table. Should we get into a situation where the couple bid model has a negative cash flow, we need to talk about the withdrawal priority. Where do we go to get the money to cover that negative cash flow?

And that's what's done with this table. The choices are the regular investment accounts, the husband's tax-deferred account, the wife's tax-deferred account, and the Roth accounts. And those can be put in any order. So I think that there's 24 ways you can arrange that. And those are listed here in this pull-down menu.

You can pick whichever one you want. I picked the first one. That's one that actually tends to be the best. And then you can pick a different withdrawal priority for each of the scenarios. This table does other things. You can see there are a number of things down below.

But at this point in time, I don't think I want to go into those. I'm going to move on. The next thing is Asset Classes. So one thing that may separate the Perlina Calculator from other calculators, it doesn't simply ask you what rate of return you think you're going to get on a given account.

It derives that from underlying asset classes and from an asset allocation per account. And on this page, we're talking about the asset classes. And it can be as simple as a single asset. If you really just want to say, I just want to specify my rate of return as 5% or 7% or whatever I want it to be, I can just say, I'm going to just use one asset.

And I'm going to just, for the sake of this example, I said, I'm going to show you how we do that with scenario 3. And I'm just going to call it-- I'm going to keep it simple. I'm going to keep it simple asset with a real rate of return of 3 and 1/2% and a standard deviation of 5%.

But if you don't want to keep it quite that simple, you can do something else. But there are up to 10 asset classes that you could enter. I personally keep it simple with maybe two or three. This is kind of what I use. These are not necessarily my numbers, but these are the asset classes that I tend to use.

And if you want to go from something complicated to just default, you can click this button here. And it will load this in as a default setting. So for this example, I've said the money market asset class for scenario 1 has a real rate of return of minus 2%.

In other words, it's falling behind inflation, but has a very small standard deviation. So it's very consistent. For the stocks, I've said a real rate of return of 5% with a 20% standard deviation. And bonds, real rate of return of 2 and 1/2% with a 7 and 1/2% standard deviation.

And all of these are the three scenarios use the same assets with the same assumptions about their rate of return and standard deviations. The 529 plan, it doesn't get into the-- it's not as complicated as asset classes and asset allocation. For these, you do simply specify what is the rate of return you think you're going to get on your 529 plan investments and what rate and what standard deviation.

So I mentioned earlier that the tool does fixed rate. I think I mentioned it does three types of analysis. One is the fixed rate analysis, where it just uses an average rate of return each year. And these are those average rates of return. But for Monte Carlo analysis, these are the arithmetic means.

And these are the standard deviations, which are used to generate the random rate of return every year in that simulation. More on that later. OK, so I mentioned to get the rate of return for a given account type, we need two things. We need the rate of return, and we need the asset allocation.

So I'm going to skip over to the asset allocation right here. This is a busy looking table, but it's not really that bad, but it is organized. These are the allocations for scenario one. These are for scenario two. These are for scenario three. And then these are the various accounts.

There's a regular investment account, the tax deferred account for the husband, for the wife, and there's the Roth account. And then, so down below here, let's just say we're going-- you can specify different allocations for up to five different periods in time. And in this example, I've used two different time periods, called period one, period two.

Period one begins right now, 2021. Period two begins in 2027. You specify those years here, and then you come down here, and the asset classes that you input over here are replicated on this page, and they show up here. You cannot change them here. These are simply copied from the asset classes page.

But here, you go in here and you say, these are my allocations of these asset classes for each of these accounts. And to make it simple on this example, I've used the same allocation for every one of them. And as I said earlier, during the first period of time, while the couple are still working, it's a little bit more aggressive than it will be later.

So it's 60% stocks, 40% bonds. When they get retired, they'll invest 10% of each account in money markets, 40% stocks, 50% bonds. So now what the tool does is, based on the rates of return you put over here on this page, and this asset allocation here, it generates an aggregate rate of return, and that's a real rate of return.

So for period one, it's 4%. For period two, it's 3.05%. It's a little bit more conservative. It's a little bit lower rate of return. And then here, these are the rates of return associated with the cash account, which would be your checking and savings accounts. So there are no assets associated with them.

You just specify the rate of return directly. So I've done the same thing for scenario one. Scenario two are identical. The one I will show you, we'll deal with it a little bit later. Just for you, you just want to keep it simple. I don't want to deal with all these asset classes.

I just want to tell you what my rate of return is going to be. Therefore, we use the Keep It Simple asset, which had a rate of return of 3.5%. So you come over here and say, I'm allocating 100% of this account to that asset. And therefore, the aggregate rate of return is 3.5%, just like you specified on the asset classes page.

So that's how the tool derives the rate of return to apply to each of these accounts. And it uses that in the fixed rate and the money follow projections. OK. One other thing we need to talk about before we leave this, the financial assets area, is the asset class taxation.

And this pertains only to the regular investment accounts. We know how it's-- so tax-deferred accounts and Roth accounts are simple. Everything that comes out of a tax-deferred account is taxed as ordinary income. Everything that comes out of a Roth account is tax-free. So we don't have to deal with that.

But we do have to deal with the regular investment account. And so you have four choices of how each of the assets are taxed within the regular investment account. Could be just taxed as simple interest, could be taxed like a qualified dividend as a long-term capital gain. It could be taxed as a long-term capital gain when it's withdrawn.

Otherwise, it's not taxed. And/or it could be tax-free, such as a municipal bond one. OK. So I've set it up this way to make it simple. Money markets, I'm assuming, are taxed as simple interest. Stocks, I'm assuming, get a little bit of just simple dividends, unqualified dividends, taxed at 5%.

But 95% of the assets associated with stocks are taxed only when they're withdrawn. Otherwise, they continue to grow. And with the keep it simple, I said it's 50% simple interest, 50% when it's withdrawn. And they're all the same. So with that, I am through talking about financial assets. And then we'll move on to the income page.

Again, it's organized just like the others. These sets of fields are associated with scenario one. This is scenario two. This is scenario three. Again, you can see that the name we gave with each of those scenarios is listed up here. And then here are the items that we can enter data for.

This is a very long table. There's three. And for that reason, there are some links up here, some little hidden buttons that allow you to scroll from one major function to the next. So at the top of the page, there's the employment income stream. There's three of them. Beneath that, there's pension income.

I'm going to click this button here. It will scroll down to bring the pension streams up to the top of the page. So there are two. So you can see you can identify two pensions for husband and wife for each of the three scenarios. Now we're going to scroll to the social security inputs for each of three scenarios.

And then there's windfalls. You can be taxable. There's non-taxable windfalls. Then if you've still got yet other streams of income you need to specify, you can do that down here. There's five of these other income streams that can be defined for each of the husband and wife for each of the scenarios.

Going down further, you can define two annuities for husband and wife for each of the scenarios. And then if you anticipate inheriting an IRA, a traditional IRA, or a Roth IRA, at some point in the future, you can do that. And then finally, you can define a reverse mortgage.

Now with that, I'm going to quickly show you how I entered the data that I described for this scenario. At the top are the retirement dates. I said this couple is going to retire on the same day. That's going to be May 1, 2024. And they're both currently working.

So I'm going to put that under employment income stream number one, which starts when he's 55 and it ends when he's retired. Now you can define these start and stop dates for any of these blocks of income stream. You can define them either by an age, by a year, by a specific date, or by the retirement date, which is here.

So if you want to tie this income stream to that date, what you do is just type in an R right there. So this income stream is going to begin immediately and it's going to end on May 1, 2024. So in the meantime, it's going to be $150,000 increasing to 3% a year.

$12,500 going into his IRA and the company is going to kick in $6,250. Meanwhile, the wife starts these two years younger. She's starting now. Her income stream of $40,000 is going to end when she retires on May 1, 2024. That will also increase to 3% a year. She'll be contributing $4,000 a year into her 401(k).

And so now I'm going to go down to the pension streams where Joe is going to have a pension income stream that starts when he retires on his retirement date of May 1, 2024. And it goes indefinitely. It's the amount is $25,000 and that's fixed. And it does not increase.

But it does have a 50% survivor benefit should he die before his wife. I want to go down to Social Security. And here I said that Joe will have a $30,000 benefit if he added in his full retirement age of 67 his wife will have 22k and her retirement age was 67.

However, Joe actually intends to work until he's 70. So this amount will be increased at, I think, 8% a year until he reaches age 70. And it will begin. And hers will begin at the full retirement age. So it will be $22,000 from the start. OK, I said that Joe will be inheriting money from his parents.

It will be $50,000 in a brokerage account in 2030. And his wife will be doing some part-time work earning $2,500 a year from 55 to 60. It goes up at the inflation rate and will be taxed as regular income. But you do have the option if you could borrow something that's not taxable or taxable as capital gains.

Those are options as well. Just scrolling on down, no annuities, but there is an inherited IRA coming at some point. They anticipate that being $50,000 a year and then-year dollars in the year 2030. And it will have a distribution period of 10 years. Now, so all three of these scenarios are the same.

I don't think I put any differences in them. So that's how you define the income a problem ago. Now we're going to move to expenses. Again, there are a number of subtables here, different categories of expenses, which have nuances into how they're modeled. So the tool does not simply say, here's an expense, here's a start date, here's a stop date, and then here's how much it increases per year.

This tool goes way, way beyond that. So on this page, it models properties, such as homes and cars. So what I've said, as I said, the current, this couple currently owns a home. They bought it in 2010. They paid $300,000 as a cost basis for this home. It's currently valued at $400,000.

It has a mortgage on it at $75,900 at 4.5%. Monthly payment is $1,338. They expect to sell it in the year 2027, and they will have a realtor fee of 6% when they do that. You can see it. So when they sell this home, they'll be buying another retirement home in that same year.

They'll be paying $300,000 for it. They will be paying cash. There will be no mortgage, and they don't ever intend to sell it. And I said they had a couple of cars. They bought one in 2012, another in 2017. You see, this is what they paid. This is what they're worth.

They have a mortgage on one of them. These are depreciating some every year. And when he sells this one, he expects to buy this one to replace it. When they sell this one, they're going to buy another one here to replace it. And when they sell that one, they're going to replace it with this one.

So that's the purchase and the sale of each other. There's 10 roads. You can model 10 different properties on this table. So this is the top table is the acquisition and the loan and sale information. The table below applies to the same properties. So that whatever name you type in here is replicated here.

But these get other costs. These are some costs of ownership, such as property taxes, insurance, and annual operating costs. Gasoline for cars, maintenance for the homes and the cars, then utilities. This is the one page where the three scenarios don't line up side by side, because as you can see, this table is very wide.

It just wouldn't work to have them side by side. So they're stacked on top of each other. And so these links here help you scroll from one to the other. Right now, we're looking at scenario one. We can look at scenario two by clicking that. That now brings up scenario two.

There's some click that to bring up scenario three. In this case, they're all identical. And at the bottom of the page, there's some summary information that is calculated based on the inputs in the tables above. Now, we're only looking at one scenario at a time. In this case, this is probably the first time we've seen this little gizmo here, which says you can click this button to specify which scenario you want, either one, two, or three.

The one that's active is listed here. So right now, we're looking at scenario one. If I wanna go to scenario two, I just click that. And this will change the scenario two, which is the same. Okay, so the left part of the table is a summary across all of the 10 assets.

And this is just one of them. This table, this page potentially goes to the right about five or six feet. But that's very cumbersome to try to scroll. So what this capability here just lets you look at whichever one you want. You click up or down to look at a particular property.

And this is the sum. So on the property one, the current home, so here's the loan. They're paying that off. It's going toward zero. Here's the monthly payment. There's the value. You see the value of the house is going up. Equity is going up. These are the taxes, the insurance, and so on.

Then here's the second property. It kicks in when they sell the first one in 2027. And it continues on to the end of the modeling period. So you can see these are the annual expenses when a property is sold. There's a windfall. The net expense is a difference between the expense and any windfall.

Otherwise, it's just the annual expense. These are the tax deductions. And then here's the total equity. Well, that's basically how you specify property. This tool also does rental property, very similar to the personal property, but it's more complicated. But that probably only applies to very few people. So we're definitely not gonna, we're gonna skip over that in this demonstration.

Okay, one other thing, let me go back. I failed to mention, for any of these properties, you can do a home equity loan as well. You pick the one property you wanna do a home equity loan, fill out the details here, and you can do a home equity loan or a home equity line of credit, whichever you choose.

We're not gonna do that in this example. Okay, now moving on to children, which is second expense category, which is different from all others. It's basically, the table at the top deals with college education expenses for the children, for up to four children. And the table below deals with the expenses for those children prior to their college years.

So in this example, we've got two kids, John and Sue. John's gonna start college this year. Sue's gonna start in a couple of years. Therefore, Sue's expenses in the next couple of years are listed here, they're $8,000 a year. So the annual cost of college is $25,000. They will be going for four years.

The parents are only gonna pick up 25% of that though. And for John, they can anticipate funding that with the 529 plan, which had an initial balance, which we already specified. I think it was $50,000 already there. But for Sue, we're just gonna do, we're gonna pay as we go.

So the details of how all that lays out is not shown here, but we'll get to it a little bit later when we get to the tabular projection. Healthcare expenses is yet a different, a different way of modeling an expense. As I mentioned, when I was briefing the scenario, these, their healthcare expenses vary quite a bit from during their working years as they go into their retired, early retired years, and then ultimately on to their Medicare years.

So there are fundamentally five periods of time that the tool deals with. The first of those applies, and all of these apply to married couples in general. Period one is when both partners of the marriage are working. Period two follows that, and that's when only one of them is working.

Period three is when neither of them is working, yet none, neither of them has reached Medicare age yet. Period four is when only one of them has reached age 65 and gone on Medicare. And then finally period five is when both of them are 65 and on Medicare. So for each of those periods of time, there's two rows.

One of the first row deals with insurance premiums, the other deals with out-of-pocket expenses. So here's the numbers that I've chosen for there. And then you can see when there is no period two because they both retire, they both stop working on the same day. So they immediately go from period one to period three, and this is consequently blacked out.

At this point in time, they go on Obamacare, and the premiums go up substantially, but this is the actual premium they pay. And prior to any subsidy being applied, then these are their out-of-pocket expenses. And then as the husband goes on to Medicare, the expenses will start coming down a little bit, and then ultimately it'll go down further when they both get on the Medicare.

And so the tool will, it'll automatically calculate Medicare Part B premiums for you if you check this box. If you don't check it, you have to know the name of it. In this example, I'm assuming the tool is calculating the Medicare Part B premiums. You would still, if you have supplemental insurance or Part D insurance, you would need to enter those premiums here or here.

Now, if any of these expenses are paid with pre-tax dollars, you can enter what portion of it is paid with pre-tax dollars in these fields. Moving down below, now this part of the table deals with Obamacare Affordable Care Act health insurance. You just check if you want to use it, you just check the box.

For period three, these periods are the same as these periods. So if you're gonna use Obamacare in period three, you check that box. For period four, you check that box. And then assuming you are gonna use ACA insurance, this is where you put in the key number, which goes into the calculation of the subsidy.

This is one of the, so this is the cost of the, I think what you call the second lowest, the second least expensive silver plan premium. So in this case, it's $12,000. So your subsidy, the subsidy for this couple will be based on this number and their modified adjusted gross income.

So those two factors go into calculation of the subsidy. And there's some tables behind the scenes here, which are used to calculate those values. Another thing that you can enter on this table is what happens after if one of the spouses die, because these are expenses for both members of the marriage.

If one of them dies, what's gonna happen? In this case, we're assuming that these costs will be cut by 50% upon the death of the first spouse. And then finally at the bottom, if there's long-term care costs that you anticipate, you can specify that down here. Annual cost, what year it begins and how long it goes.

If you leave that blank, it begins at that age and lasts forever, for the lifetime of this person. So that is how health care is done. Now, moving to discretionary expenses. This is another big table. It's got three segments to it. Scenario one, two, and three. And then each of these scenarios is further divided into three time periods, with the idea being your expenses are probably gonna be different in your working years than they are during your early retired years, and then may change again further in your late retirement years.

So in this example, all the costs are, I think they're the same, except I put in a bigger number here for period two, which will be the early retired years, anticipating that the couple anticipates doing some travel. So that number may peak up during this period too, but ultimately they get a little bit older at 20, 37, or slowing down again, and the number comes back down.

So the discretionary expenses are 27.5 for period one, 45K for period two, and then dropping back down to 25K during retirement, during period three. And should, again, what happens if one of the partners of the marriage passes away? These expenses are probably going to reduce, and you can specify by how much down here.

In this example, I'm assuming they dropped by 40% after the death of the first spouse. Now, I'll go to another table, miscellaneous expenses. This is generally for capturing one-off costs, like the weddings, it doesn't have to be one-off, but in this case, it is. John, the son's wedding, $15,000 in the year 2027, just one time for the start year in the second year.

The start and stop year are the same, same for Sue's wedding. There's the cost, it occurs in 2030. These are today's dollars, but they will be increased up to that point in time. And then both scenarios use the same data here. Now, the tool also allows you to model term life insurance, a whole life insurance program.

I'm going to skip over that for this example. And then finally, the final piece of expense inputs here is charitable contributions. In this case, I just picked one charity. The amount is $10,000, it starts this year, increases at the inflation rate, and it is to be treated as a qualified charitable distribution or donation at age 70.

So, again, this is for scenario one, scenario two, scenario three. Okay, so that completes the input. I have now defined the scenario. Now we can see what the outputs are. Jim, is there a way for me to, there's a menu at the top that's, the zoom table at top is blocking my, what I'm trying to get to.

- Like the yellow bar, do you have like a yellow bar around the screen? You may be able to click it and it may not be real visible, but it may actually work. You can move some of those controls, Stuart. - How do I? - Grab them and move them.

- Just grab it and move it? - Just drag it, yeah. - Oh, okay. Thank you, thank you, thank you. Perfect. Okay, now we can see what we're doing. Okay, so now those are the input screens. Now I'm going to skip over analysis for the moment. I'm going to show you some of the tabular projections produced by the tool.

There are eight separate views, customizable views. You can define what these views are and what data goes into these views, but I've got them set up. And so it's income, contributions, expenses, and so forth over to summary. And then additionally, you can look at the details of the adjusted gross income and your itemized deductions.

But let's just start over here with income. So you can see, so these are the fixed rate analysis results. All these are based on the fixed rate returns that we define on the asset classes and asset allocation pages. And so Joe's income is, you can see it's here, starts at 150 and drops down when he retires here in 2024.

He only worked a partial year. So you can see it's starting to step down. Then he took that part-time job, earning $10,000 a year for several years. His wife earned $40,000 a year after her retirement date, I think in May of 2024. And then Joe has a pension that kicks in on his retirement day here.

So he gets a partial year here, and then in full years here thereafter. But remember, I told you this was a fixed pension. It does not increase over time. We're currently looking at this data in terms of today's dollars. If I switch it to future year dollars, you'll see it comes back to the $25,000.

And then I think I also mentioned it has a 50% survivor option. So in his death here at age 85, so he goes away, but now his wife is still going for several more years, and his pension drops to 50% of the $25,000. Okay, I'm gonna switch back to today's dollars.

You can see social security kicks in here, and this is the portion of it that is taxable based on the modified adjusted gross rate, or the taxable amount based on the AGI. That determines how much of the social security income is taxable, and that's presented to you here. Here's another page that shows just a few contributions.

These are Joe's contributions, his 401(k). These are Jane's contributions, and these are the company, this is Joe's company numbers. Then here's a page that shows the expenses. These are the, this came off the expenses page. The, I mean, the net, the property page. This came off the children's page.

These are the, we initially had $50,000 in the 529 plan, but that wasn't enough to fund the first kid's education. We had to kick in some more money, so that's, that contribution is here. These are the healthcare expenses. We talked about it, it starts low at $3,000 a year, but then it goes up high, and then comes back down again.

Once we get onto Obamacare, there are some subsidies that are created. You can see those are listed here, and they serve to reduce the healthcare expenses here. So this takes into account the application of that subsidy. We had a miscellaneous expenses to pay for those two weddings, that's what these are.

And then these are the specific discretionary expenses, which included the increased spending for the travel during the early retirement year, the 10-year ban there, I believe, and then it drops back down to about 25,000. Then upon the death of the husband, it drops by 40% down to this level.

Then I think that the final expense that we specified was the charitable donations. They start off as a non-QCD prior to age 70, but at age 70, they become qualified charitable donations. And basically these then come out of Joe's tax deferred accounts as RMDs, but they're not taxable. The account for his RMD, but they're not taxable.

So that is the expenses page. Now here's a page that shows the detailed tax information. I told you this still does detailed federal and state tax calculations. And these are some of the information associated with that. Here's the AGI column. And if you want to, if you see this, you want to say, what the, how did that, how did I actually get it down?

What are the details? You can come over here and there are the details, this page. So there's the sum and here are all the components of it. And it's actually wider than this page. So you can scroll over to see some more of it there. And these are the itemized deductions.

Should you be able to itemize, these are the details of that. Now we're going to go back. This is the tax page again. Here's reportable capital gains. These are the deductions and exemptions. So there's AGI minus this, it's federal taxable. There's a state taxable. These, here's a federal income tax, state income tax, which goes away by the way, when this couple relocates from Maryland to Texas at the end of 2027, which we specified on the homepage.

While they're still working, they've got social security tax, that's this. And then the overall effective tax rate is shown in this column. This is their marginal tax rate. Starts off at the 22% range, drops down to 10%, finally gets up into the 15% range when the RMBs kick in.

And that is that. Now, so here is a page that shows, what are the various accounts doing? We talked about those accounts initially. So there's a 529 plan. There's a cash, there's a cash, there's a cash account. There's a regular investment accounts, both tax deferred accounts for husband and wife.

For all the accounts and inherited IRA account, the health savings account. And this is the total of these savings accounts. This is the equity and the property. And this is the total net, which is net savings plus the equity and the property. And so the growth over time, you see these are the rates of return based on what we defined over here on the financial assets as an allocations page.

But over here, we said, these are real. These are the real rates of return. Over here, these are the nominal rates of return, which is basically the real rate of return plus inflation. So you can see they started at 7%, they dropped down to 6.1, and that's where they remain to the end.

And then these are the actual growth amounts. These are actual dollar amounts of that growth. These are in terms of today's dollars. If you wanna look at it in terms of future year dollars, you click this button and then you get that. Okay, what about withdrawals? One of the withdrawals we know we're gonna have is we're gonna be taking money out of that 529 plan in favor of First Kids College.

And then RMDs are gonna start. And they start at age 72. And that begins, so that the age is shown here is the age of the husband at the beginning of the year. But we know his birthday was sometime during the year, so that RMD, so he reaches 72 sometime during this year.

And so that's when those are due. His wife begins two years later, and those are their RMDs. And even though Joe passes away at this point in time, that RMD continues and goes to his wife. She inherits that. But we do have a negative cash flow situation going. So there's unscheduled withdrawals from the regular investment account.

I believe we must have negative cash flow. And so yes, indeed we do. So here's a summary page. And this is a total of the income, total expenses. This is the difference between them. This is the cash flow. It's positive while they're working, but when they reach their retirement age in 2024, then they get into a negative cash flow situation.

And this is the overall withdrawal rate. Total property, total property. They have a loan for a while. There's the property loan balance. There's the equity. Again, net savings, then the total net worth. So going back to withdrawals, we do have a negative cash flow going. Therefore, there's gotta be withdrawals taken to cover that from somewhere.

And because of the withdrawal priority that we specified back here, regular first, and then the husband's tax deferred account, it starts taking those, covering those negative cash flows from the regular investment account. And that's what these are. But ultimately, I think that, let's see. The regular investment account runs out of money here.

So now we've got to go somewhere else to cover the negative cash flow in 2030. So in 2030, or 2031, we have to start taking from Joe's tax deferred account, and that's what these are. - Okay, so that's the tabular projections. And one other thing, if you don't like the way this is, there's a lot of flexibility here.

First of all, if you don't like the way this is organized, you want it to be organized in some other way, you can just take that, click on that column that you want to move, and go over here and move it to the left. Move it back to the right.

Move it over there, move it to the end. Put it wherever you want it. If you don't like the title that I've given it, you can delete that header, call it something else. I just have to remember how to do it. You click the add header, come down here.

Something else. So you have flexibility. You can change these things any order you want. You can change these headers, expand those columns. Additionally, I told you, you can define these eight views, however you want them to be. You do that from this tabular projections, major page, you come over to the view management sub-page, and then here are all the columns of data that are available.

I think there's 130 some columns of data. So it's far more than one page wide. You do have to scroll to see all of them. But here are the eight views. You can define, call them whatever you want to call them. If you don't want to call it any kind, you type in something, change it to whatever you want to call it.

And then you check, you just put checks. These are the columns of data I want to include on that page. You just go through, you check whichever box, whichever columns you want, and it will appear on that page. This row right here tells you whether there's actually any data in that column or not.

So you can see, if it has a no, I didn't check it for the most part. So you can just go through there and pick whichever views you want. So that's it. I won't dwell on it anymore unless there's some questions, but then I'm gonna, so now I'm gonna move to the graphical projections.

I said this thing produces outputs in terms of table and graphs. So here's a graphical view of the savings and net worth. There's quite a bit of data on here. The bar chart portion of this thing is all the savings related things. And these are stacked bar charts. So the top is the overall net worth.

And so at the top, the top segment there is the total equity and property. The bars beneath that are the various components of your savings. And then the line graph is income. The blue line is income, and this line is the expenses, and they are calibrated against the scale on the right.

The bars are calibrated against the scale on the left. And you can show this in terms of today's dollars or future dollars as well. Okay, with all that said, I've got one other thing. One of these is reports. The tool is designed to be an interactive tool. You make your input, you see the outputs, and you can flip back and forth.

You can see all the outputs. But if you wanna produce it, produce a report, a PDF, you can produce a PDF file from this page, and you can arrange that in a landscape orientation or portrait orientation. It creates an input report, an output report. I'm not gonna do it, but it generates a PDF file, and you can print it, share it with someone else, whatever you wanna do with it.

Okay, with all that said, now let's do some analysis. So based on all these inputs, how's this couple gonna fare? So I'm gonna start off by doing a Monte Carlo analysis on scenario one. And to do that, I'd select this, but the analysis type that I'm going to do is shown in red.

Right now, it's Monte Carlo is selected. If you wanna do historical, you click that, and see it changes to red. I'm gonna go back to Monte Carlo and click update the active analysis. And it's gonna take several seconds. It's gonna do that analysis. There it is. And so there are two primary things shown here.

The red line sneaking through the middle there is the fixed rate analysis based on average rates of return of each account. And then the blue bands are the Monte Carlo analysis. The product goal uses 500 different test cases in its Monte Carlo analysis. And the blue bands are trying to show you the distribution of those results across all 500 test cases.

And they're arranged by a percentile. They're 10% bands. The lowest band is not shown, and neither is the highest band. So the first band down at the bottom is the results that show up in the 10th to the 20th percentile. This is the 20th to the 30th, and so on up.

So this is the 80th to the 90th percentile. With the cursor on there, it shows you what percentile range we're talking about. So you can see, based on the standard deviation that I specified earlier, we get quite a bit of a range in these results over time. But in this particular case, the company had a 98% success rate at the end of their life.

So I'd say that's pretty good. - Stuart, this is Jim. I have a question. - Yes, Jim. - I noticed when you set up the original assets, you put the stock market, I think, at 5% with a 20% standard deviation. That's reflected here, right? That's some of what you're seeing here.

My question is, I'm not used to thinking about it within a standard deviation world. Is that typical, or what would you say about the way you set this up with the 5 and 20? - Well, the Monte Carlo analysis is based on, you use it, random rates of return.

Yeah, I mean, what it's trying to do is simulate market volatility. And it does that by using random rates of return, using a normal distribution. And to do that, it needs to generate random numbers. And those random numbers are based on two things. One is the mean, which we define over here.

- Yeah, I guess my question is more, how would you describe a 5% return, 20% standard deviation? Is that like the '80s, or is it like the market is now? How would you give people a feel for how you put that input in? - Well, I'll tell you, I'm gonna give you tips from bogey heads.

You see this link right there I didn't mention? Oh, well, I'm sorry, I'm sharing my screen. That's gonna mess me up big time. Oh, well, here it is. Did everybody see that? - Yeah, we saw it, yes. - I mean, are you still seeing the spreadsheet or are you seeing the Bogey Heads website?

- We're actually seeing the spreadsheet. It could be that you asked, you told it to share the Excel application, but you can also share your screen. - Yeah, I'll just... - Actually, I've got a question I posted in the chat, but are there defaults? For most people that aren't familiar with the recommended standard deviations or current thinking, are there defaults built in that we can use?

- Absolutely, so that's right here. I'm just gonna click it. I don't know that, I'm gonna click and see what it does. But yeah, yes, and those are the defaults. So I just clicked to load the defaults. What it did was load these three asset classes and it used this rate of return and this standard deviation.

And so the tips on the Bogey Heads there, I thought that was, that's a pretty good article on the website there that provides, it provides historical rates of return for various asset classes, stocks and bonds, and what the standard deviations have been. And it also, there's other pieces on that webpage that show what they predicted, someone predicts it's going to be in the future.

I think John Bogle is one of the people who contributed to that at one point in time. I think his inputs were there last time I looked at it. - Yeah, he's the, if you click the link, it takes you to the wiki, the historical and expected returns page on the wiki.

- Okay, Bob, if you want to share your screen, you could show it. - Okay, yeah, it might be easier. Let me, I've got mine on full screen now. - Should I stop sharing? - No. - Yeah, go ahead and stop. You can restart after we're done here. - Okay, okay, there we go.

- I see there's a comment in the chat window that Joel uses 6% nominal with a 20% standard deviation. - There's also somebody asking as to whether there's a silver edition available in between the bronze and gold. - Not, no, there is not. At one point in time, there was one, but there's not currently.

- So can y'all see my screen now? - I'm still seeing the asset class screen. - Oh, we're seeing, Bob, you're sharing. That's your screen, yeah. - I'll go to my mouse. So yeah, if you click on the tips from Bogleheads, it takes you there, which has... Anybody see what I'm looking at?

- Yes, very helpful, thank you. - All right, that's all it did. Just wanted to illustrate what was happening if you click the... All right, I'm not sharing it. (mouse clicking) Okay. Okay, are we back to me now? - Yeah, go ahead, Stuart, thank you. - Okay, sure. So Jim, did that get your question answered, sort of?

- Yes, I'm gonna dig into that page that you guys said and try to understand the feel for it. I do a lot of statistical things, but I never really looked at it in the market. - Okay. So you can see there's a little bit of a yellow line showing up back there.

That's because we did, I think it's probably because I clicked that load to defaults and it changed the rates returned just a little bit. So I'm gonna update the analysis. And it's... And there it is, okay. And so that's a Monte Carlo analysis. And again, the last, the success rate over the last 10 years of the modeling period up to the death of the wife is shown here.

It's nearly 100%. You can also show expenses. The title is Total Savings and Total Spend. You can show expenses here as well. And it shows up, it's calibrated against the scale on the right. And there's this gray band here where the dashed line is the expenses with the fixed rate, fixed rate return expenses.

And the gray band around that is the Monte Carlo analysis. So as you earn more, if you're doing well in your Monte Carlo analysis, you're gonna, your accounts are gonna earn more. You're gonna be paying more taxes. And that's probably what causes the certain amount of width in that band of expenses there.

But it's, I built in the ability to hide it because it lays on top of that, of the blue bands. And sometimes it can be very wide and almost cover up the blue bands. So therefore I generally run with it hidden. We wanna look at historical results. I will click it and then I'll describe how it works briefly.

Okay, there's a result using historical analysis. When I was, so this is using historical data and I needed to show you where that is defined on the financial assets, historical data. And here's, so this has historical data built into it and it has S&P returns based from Robert Shiller go all the way back to 1871.

And then there's information from, let's see, the Stern School of Business has the treasury bills and treasury bonds data going back to 1928. And that's, so that's what these are. These are the historic returns that I just described, Shiller returns, these are the Sterns returns. And if you have your own data that you can use, that you wanna define for your own asset classes, you can do that with these extra columns over here.

But for this example, we're using this, the history data that I got from Shiller and Sterns. And so the way that the historic analysis works is it just runs through these sequences one after another. And so let's say that, just to make it simple, let's say I have 50, I have, let's say I have a hundred years worth of history data and the lifespan that I'm gonna model is 50 years.

So the first test case I do is to do 50 years of history, beginning with the 1928 data and go 50 years. So that's test case one, is the 1928 through 1978 data. And then for test case two, I'll start with 1929 and go through 1979. Test case three starts with 1930 through 1980 and so on, until we can't go any further without running out of data.

So if I have a hundred years of history data and a 50 year lifespan, that means I can get about 50 years worth of, I can get 50 test cases. So that's fundamentally what this thing is doing. When I run a historical analysis, it uses the history data that's available.

And based on the lifespan of the people we're modeling, it will do as many test cases as it can. And then it will present the distribution of results by percentile using these blue bands, like you see here. And in this case, the success rate is much lower at only 79%.

Okay. So that is the fundamental analysis. Let me see, what I wanna do, hit on a few other things. - We have a question I can throw in here. Could you describe some of the major differences in the bronze and gold and maybe of the things you've covered so far and what you would see in bronze versus gold?

- Oh, right. Yeah, sure, sure, sure. Bronze is a pretty high fidelity calculator as well, but it does not do detailed tax calculations. And it doesn't, it basically specify income stream by it starts here, it ends here. Here's the income. Here's how much it is. This is how much it inflates per year.

And that's how you define income. Expenses is basically the same way. It doesn't get into these detailed, nuanced expenses, such as how to model property, mortgages, healthcare, and college educations, all that. You just list the expenses. When they start, when they end, are they fixed expenses? Do they inflate with inflation, change with inflation?

And you specify the tax rate that you expect to use, the effective tax rate. And that's what it does, but it does generate RMDs. You don't have to specify what RMD is. It knows how to calculate RMDs. It does do Monte Carlo analysis. Though it's much simpler. It's much simpler.

It runs much quicker than this one. It does not do the historical analysis. It does present the data in tabular form, as well as in graphical form. But it's a much, much simpler calculator, much easier to use. Both of these have a user manual that goes with them, the bronze manual, probably 20 or 30 pages.

The gold manual is 180 pages. So this one, the gold will do Roth optimizations. Bronze will not. Gold will, it does detailed modeling of your social security. It will tell you the optimum age to start your social security, for both husband and wife. Bronze will not do that. So that's an overview.

Does that generally cover what you wanted to hear? - Yes, very good. There are a few questions I could ask now. Someone said they opened up the bronze version, put Joe's age at 42, and they got a circular reference on Excel. I don't want to belabor that one, but just thought I'd mention it.

- Oh, okay. Okay, I think I'm going to guess one. I know what it is. Yeah, one of the things that the bronze calculator does is it does iterative calculations on taxes. Gold does not. And if you do not have it set up to run, it's possible you have another Excel file that has come up and it's taken Excel out of the iterative calculation mode, you will get a circular calculation error every time.

Because basically, if Excel does iterative calculations, it has circular references. But if it's in the iterative mode, it will iterate until it resolves the answer. So that's how we do it. So the calculation, the circular references are not a problem until you turn off iterative calculations. So if you- - All right.

- Pardon me? - Yes, thank you. Okay. Second question. Second question, you may have covered it, I may have missed it, but could you describe anything about health care, premium tax credits or subsidies? - Yes, yes, yes. Let me go back to that. We're going over that maybe too quickly.

I think premium tax credits and subsidies are synonymous. And so the subsidy depends on a few things. One of which is this benchmark cost of the silver plan cost. I don't know if I can quote with a term, it's the second lowest cost silver plan in your geographical area.

And so that is taken into account. Also your modified adjusted gross income. You have got to be between one times and four times the federal poverty level to qualify for a subsidy. If you do qualify, then the tool will calculate your subsidy based on this number here and your modified adjusted gross income.

So the Obamacare algorithm determines how much you're expected to pay for your insurance based on your magic. And so the tool does that behind the scenes here. - Yeah, thank you. I must've stepped, I had to take care of a personal problem. I must've just missed that slide. - So does that answer it for you?

- Yes. Do you anticipate making some changes for this? There's just recently they passed some law last Thursday with raising the subsidy. Okay. Could you speak to that? - I have to familiarize myself exactly with what to change and then I will do it. - Okay, thank you. We have some questions about Roth conversion optimization.

If you could demonstrate that or speak to it. - Yes, I was going to go. I was going to get to that. I was going to use a different example. I did a Roth conversion on this particular example, but it was not very, basically it's not very effective to do a Roth conversion.

Let me show you real quick. So you do, that's what it falls under analysis. And there are some sub pages here. Plan Roth conversions is one of them. And again, it's oriented scenario one, scenario two, scenario three for both husband and wife. I need to get this thing out of the way again.

So the input fields over here are for the husband. These over here are for the wife. Basically, you can either say, we're not going to do conversions. We're going to do, I'm going to click this, but you can do fixed duration conversions. We're basically just going to start. So there's three different options.

We're not going to do any. We're going to do a fixed duration conversion or we're going to do a tax bracket up, tax bracket restricted conversion. So for this right here, we're showing fixed duration. It's going to start in a particular year. We're going to do this percentage of the tax deferred account.

We're going to do it over a period of this many years. And that's what we're going to do. Meanwhile, you can do the wife and either do them or not do them also. Give you both fixed duration, but you can say independently of the husband, this is when she's going to start.

This is how, what percentage of her account we're going to convert over so many years, three years, whatever, however many years you want to take. That's how you do it. If you do, incidentally, you can see, we just, I just did that and it changed it. And it said, okay, that made $126 difference over the long term.

Not much difference. So now let's look at tax bracket restricted. The only thing that changed here is how many years you want to do it over. It is no longer a factor. It'll do it. It'll do it as quickly as it can, given the, how much you can put in the, how much you can do, given the limit of the tax bracket that you specified.

Now we're here. We said, this is max tax bracket I wanted to use. I do not want to get out of the 22% tax bracket while we're still under TCJA. If we, once we get beyond that out in 2026, the 22% bracket is going to go away. It's going to be replaced with a 25% bracket.

So you'll see the options in here have two different values, but basically there are seven, there's seven brackets that the dual is good. And depending on which tax law we're under, it's either 24% or 28%, 32%, 33% and so on. So you can, so in this case, we've said we're going to do 50% of the account starting in that year.

With a limit of this 22% or 25% bracket, you can see the red line indicates the results of the projection. The fixed rate projection over time is worse initially, but it slowly gains ground because you're paying, now here you begin to pay less tax 'cause you've got the money out of the tax deferred account and the RMDs are lower, therefore the taxes are lower.

So the Roth starts gaining ground. And ultimately though, it doesn't quite get there. So that's how that can be done. And then you can finally optimize it. And I'm going to just do that and we'll see what it does. I mean, when you do optimize, it does a husband and wife together.

It uses the tax bracket restricted method and tries to figure out what percentage of the account gives the best result and which tax bracket gives the best result. And then it presents it here. In this case, it's saying converting 25% of the account is best, staying under the 10% bracket is best.

It basically makes no difference. It's only a $2,800 difference over the long-term. However, that's using absolute dollars. The one thing we do know is that money in a Roth account is worth more than money that's in a tax deferred account. So the tool will recalculate based on the average marginal rate over your lifetime.

And it will decide what are the effective number of dollars involved. In this case, the Roth conversion looks a little bit better but not still not very impressive. $16,000 better long-term. So anyway, this is not a very dramatic example. I do have a different one that I can use that let me go just do that, let me go just do that.

- Yeah, let me check with, Margaret asked that question originally. Margaret, does that answer your question? Or do you have any detailed Roth conversion question? - I'd actually like to see the other case where you've got higher amounts in the tax deferred if you have something along those lines.

- Yes, ma'am, I do. So let me, I'm gonna leave. I'm gonna go back to the homepage. I'm gonna go to this subpage called simplified inputs. And so this is what you might use if you're just gonna, I just brought up this really complicated tool. I really don't wanna read a hundred page manual today.

I wanna put in some basic things like I might have a really simple calculator and I just wanna get started. I wanna kind of see how it goes. So this is what I'm gonna use for this example. So again, just 3%, 3% inflation, $2 million in a tax deferred account.

And in a couple of it's already basically retired. So I'm gonna go ahead and tell it to go ahead and populate the tool with these simple inputs. And it's, are you sure you wanna do it? Yes, I wanna do this. So right now it's populating those pages we already looked at with this simple data.

It's eliminated everything I put in before. Put in the case, it says it's done. Now we're gonna go do the homepage and just take a quick look. Here's the initial balances. Now you can see we've got the $2 million in tax deferred, 500K in regular. And now let's go back over here.

And let's start just by running an analysis. Let's see, you know, with no Roth conversions, let's see what this looks like real quickly. Okay, we're doing, okay, that's a historical analysis. I'm gonna switch and do Monte Carlo. Okay, now let's go do a Roth conversion. All I gotta do is come here and click optimize.

(mouse clicking) First thing it does is it doesn't really know what you've already done in Monte Carlo analysis to compare to, so it's gonna do that first. So that's what it just did. Now it's working on the optimization and the Roth conversion. It's saying here the Roth optimization does yield better results than not doing it.

And get that out of the way. In terms of, okay, it's quite a bit better this time. That's still in terms of the effective dollars. Let's look in terms of absolute dollars. Okay, so this is just count all dollars same. A dollar in tax deferred is just as good as a dollar in Roth in this particular graph.

You can see, so the blue line is the baseline. The red line is the what if line if we actually do this Roth conversion. That's what it's gonna look like. So you can see there's a crossover point out there in 2043 or so. All of a sudden now from that point forward, the Roth is better.

It falls behind initially because we got the big tax bill to pay as we do the conversions. But now we're gaining ground because we have less taxes to pay because of the lower RMDs. So it goes on and gains and keeps on gaining from there on out. And one thing that I'll point out here is that I think the key is that we have to get apples and apples.

We got the same rate of return across all of these accounts. You could make this example look really bad if you had a great rate of return on a tax deferred but a poor rate of return on the Roth account. In this case, we're talking apples and apples. So you can see that over time, the Roth account gets ahead.

But if we look in terms of effective dollars, it's ahead from the get-go and stays ahead by the amount of 400 and then ultimately ends $400,000 ahead. So is that a better example? - Yeah, that's much better. So do you then produce some kind of a year-by-year chart that will show how much is being converted each year and what tax brackets it's optimizing on?

- Yes, as under the tabular projections. Let's go back to... Gotta get this thing out of the way again. Withdrawals. Here are those Roth conversions. This is the amount every year. In today's dollars, there's the amount in future year dollars. Let's see, let's look at the taxes. Let's see, it said...

Let me refresh my memory here. It said the 12 to 15%, 12 or 15% bracket. And you can see, and that is what it is. And out here is actually years up every dollar in that bracket, in those brackets. And so the amount of taxes. So the federal income tax, let's see.

I'm gonna have to... To do what I wanna do, I gotta bring those Excel menus back to the top, but I wanna use the tool to add these numbers for me. So with the Roth conversions going on, the taxes pays $417,000. But if we come back over here and turn off those conversions, and go back, we can see now we're paying $768,000 in federal income tax.

So that's why the Roth conversion is advantageous. It reduces those taxes substantially. (mouse clicking) And so here's what the accounts are doing. The tax deferred account begins. Oh, excuse me. I gotta go back and turn that on again. Okay, we're back to that. And so we start off with $2 million in the tax deferred account.

And then the Roth account is coming up here. You can see it's getting bigger and bigger as we go. And if you wanna do, you could put these on the same page. I don't currently have them on the same page, but you could get them on the same page with this view management.

I'm just gonna demonstrate that for you right quick. I think I'll put on the accounts page. I'm gonna come over here. I'm gonna find that, those Roth conversions. Let's see if I can find it. (mouse clicking) Okay, here it is. Okay, so I've added that to the accounts page.

Go back to it. And here are those Roth conversions here. As you can see, it messed up the headers. It does do this. Anytime you add data, you have to redo the headers. For now, just delete them. But if I wanna put these, so you can see, there's the tax deferred account.

There's the Roth account. Here are the Roth conversions. I wanna move them over there where I can see it. Let's just put all these together. So there you go. There's the tax deferred account going down, Roth accounts going up, and these are the conversion amounts. (mouse clicking) Anything else in that regard?

- Joel had a couple of follow-up questions. Joel, do you wanna explain your questions? - Sure, can you hear me? - Yes. - Great. So I've kind of built my own Roth conversion engine. And what I found was sort of a mixture of things worked best in my case.

So I started retired at 58. So I had like five years where I could convert to a higher tax bracket and not worry about IRMA. But after IRMA hits, then I kind of went and said, "Okay, for the next 10 years, I wanna convert to 22%." But for the first five years, I wanna convert for 24%.

And so I wanted to be able to mix and match a little bit more than what I saw in your demo. So I was wondering, is that capability there or is that maybe a future enhancement? - Partially, I'll show you one. Let's go back 'cause I skipped over that.

It will let you specify an IRMA limit. It won't let you pick a different marginal tax bracket. It will go with one or the other. I mean, it would go with only one. You cannot change that. So yes, maybe a future enhancement for now. It's only one. However, it does let you specify the maximum IRMA bracket if you choose to.

Right now it says there's no limit, but if you want to limit it in there so that Roth conversions don't drive your Medicare costs up, you can do that. - Okay. - It partially does what you ask, I think. - Okay. Yeah, I mean, this is a, Roth conversions are really tricky, tricky thing.

- Indeed. One thing I failed to mention is that they always give respect to the ACA subsidies as well. A Roth conversion will never cost you a subsidy. So it will take it right up to the limit, but it won't take you that $1 over, such as you lose that Obamacare subsidy.

It'll do everything it can. It'll get right up to the edge until you're no longer eligible for the ACA. When you've gone on Medicare, for example, then it'll go ahead and ease the Roth conversion. - Okay. And then sort of the second follow-up was, (audio cuts out) on equities.

And the IRA would certainly be mostly bonds. So there would certainly be a difference in rate of return expected between the two. Assuming you guys are doing sort of a boggle head tax advantaged, tax aware analysis. It seems like that would be a good thing to assume is a Roth would have a higher rate of return than your IRA.

Or am I not thinking about that correctly? - I'm an engineer, not an advisor. So I basically don't go there, but you can definitely do that. If that's what you think is right, you can most assuredly do it. - I did it this way. I just said, just kept a level playing field just so we could just see what the absolute-- - Yeah, there's another tool IRRP where we have to do that level playing field.

Otherwise the analysis kind of goes wonky when you try to optimize. And I was just curious that if you kind of kept it true where Roth would have a higher rate of return, how would that change your optimization then? - Well, it would use a higher rate of return.

It would just go, I mean, the optimization will take that into account. - So what we see in IRRP is it really jacks up the Roth conversions quite a bit above what would seem to be practical because it's chasing that extra return as part of the optimization. So I think it might be interesting to sort of, if you could quickly demo or talk to it, how it would handle that.

- Let me do it. Well, let's just say we're gonna go 100% stocks, 0% bonds. - Yeah. - Let's see. Okay, this was my selling. I gotta go over here and make a quick change. We'll say, what did we say? 5% stocks, real return 5% stocks? - Yeah. - Bonds that good?

- Sure, good enough. - Okay. So that gives us an overall real rate of return on the Roth account of 5% versus 3.5% on tax deferred. - Right. - Fair enough, okay. Now let's go see what we can do. - Um. - Let me just interrupt you for a second.

Norman, are you saying you're gonna be starting in about, what, 18 minutes? - Yes. - Okay, we'll be done in eight, we'll make, we have a shared account here, which we're using. So we gotta wrap this up at 18 minutes because the San Francisco group is gonna be starting their meeting on real estate.

And in fact, if Norman, if you wanna put the link out there, if anybody else wants to join into that one, but I'm gonna let Stuart follow up here. And then I wouldn't mind if Bob, if you would talk about how you use the tool because you helped orchestrate this whole meeting after Stuart finishes the Roth stuff.

- Sure. (mouse clicking) Okay, so I just reran that example. You can see that, yeah, the difference is huge. That was a five and a half million dollar advantage in terms of effective dollars, or almost five and a half million dollars in absolute dollars. When you're getting a much better rate of return on the Roth account.

- And did that, how did that change? What targets it picked for the optimization? - It went and said 90, switching 95% of the account and going up to 32, 33% on the tax bracket was the best. - Okay, so it really jumped up the tax bracket and the amount that it converted.

- Yes. - Interesting. - But what it does, it just simply runs through all the possibilities and then it looks and sees which one's best and presents it. - Got it. - And then if you leave this page like this, that's what the model is gonna assume and all the other, anywhere else you go, this is it.

So if you just want to play with it, didn't want to leave it there, then you got to go back and take it out of this mode. So just rotate between these three options. Okay. Is there anything, other questions or shall I show you just a couple more things or?

- How about Bob, you take a minute and explain your situation in life and why you like the tool? - Oh, sure. - What features you use? - Bob, shall I stop sharing? - You can just leave that up. I'll just talk for a second. Right, I had initially planned when I purchased the tool in the last year to retire in June of this year and decided not to, but this is one of the things that happened to work.

But I wanted to, my wife is already retired and I wanted to have confidence that we were making the, you know, I was under the impression from other tools that we were financially independent, but I liked some of the videos that I watched about ProLana Gold. And I think I've mentioned in the last meeting that can I retire now?

Darren Kirkpatrick is a big fan. He's done reviews of all a number of different retirement calculators. And he is a huge fan of ProLana. And I wanted to ask Stewart, where did the name come from? - ProLana? - Yeah, what is ProLana? Does it have a meaning or? - Yeah, it's my great-grandmother's given name.

- Oh, okay. - I was doing some genealogy work and I was spending a lot of time dealing with her when I started this business. And I was like, well, obviously I need a name. Well, I used it. - Well, you know, I've used it because, well, it modeled all our different income streams.

I have a pension. My wife will have a pension. I haven't taken mine yet, but the tax effects of those things, social security. We own, have bought property where we plan to build a house. I modeled that. Some things that Stewart didn't show and he modeled some things that my kids are out of college.

So 529 plans aren't relevant to me. I have health insurance through my retirement system. So I just, especially this page we're looking at now, this is something I was really concerned about because a lot of our, the vast majority of my assets are in our two tax deferred accounts, my 401, 403B and my wife's 401K.

So this gave me doing the various scenarios and just playing with what ifs, more confidence. I mean, I had used IORP and FireCalc and some of the other free tools. And there's, you know, and the one that's available through the Bottlehead site, which retirement-- - I think it's a retiree portfolio model or something.

- Yeah, retirement portfolio model. That I've used all of them. They all have some, just like anything, have advantages, disadvantages, but I really liked and still continue to like PraLana. And I think I told this story last time that I started using it and I ran across an issue where it looked like my state tax for my pension wasn't being calculated right.

I fired off an email and within an hour, I think Stuart answered it himself, telling me, you know, basically he answered the question, but he said it was in the manual very politely. And then from that point on, I started reading the manual, which has got, I mean, who writes 180 page manual anymore?

But if you wanna know something about how the tool works, it's in the manual. And so I've made a point of reading the manual a lot more, but I think I've said enough. - Okay, one thing, a question came up and I think we should end this meeting in about six minutes.

That'll give the San Francisco group about five minutes before, sorry to push against that. They've also included the Zoom link in the chat. So if anybody's interested in that, but the question that was two questions for Stuart. One, could you explain how the purchase licensing ongoing changes works in the future?

- Yes, it's done on an annual basis. You buy the tool, I set it for $99. It's been $99 for years. I don't really anticipate changing that. And then it's always developed and released on a calendar year basis. So 2020, 2021, I'm releasing early January, as early as I can.

And then I make updates throughout the year. If I need, if I find bugs, I fix them. I fix them as quickly as I possibly can. I put out a new version. You're in, if you're on the 2020, that year's license, you get all the updates for free, of course.

And then I charge, I give a 50% discount to upgrade from one year to the next. So if you've got a license for 2021, you can upgrade to the 2022 model for $49. And as long as you keep, you keep up every year, it'll be $49. And then you get the new model and all the updates that come along with it.

And I generally do not put out enhancements during the year. I just fix, I just fix problems that I discover or that someone discovers and brings to my attention. I fix them. And the tool is, as you can see, it's quite complex. There's a lot of data to enter into.

It has the ability to export your data from one copy and import it into another copy. So it's relatively easy. It's not, it's not nothing, but it's relatively easy. Download the new model, import the data that you exported out of the previous one. And it's, compared to the way it used to be, those imports and exports run really quickly.

- Okay, thank you. - They take several seconds. Can you spend four minutes and talk about the study sensitivities and optimization tabs? - Oh, yeah. So I like to go back to, I'm going to go back. I'm going to do what I just talked about, import. I'm going to import the file.

Let me get back to where we started from. You're going to see exactly how long it takes to do an import. That's what I'm doing right now. Okay, that's it. It's done. I'm going to quickly go over here. I'm going to do, I'm going to rerun the analysis real quickly.

Okay, I'm going to go to optimization. What I'm going to do run for you is optimize social security start ages. And this is not to say, this is the, it's not going to give you the ages where you, this is not going to give you the age at which you earn the most money.

It's going to be the ages that result in the greatest savings at the end of your life. And so it's presented in this matrix. And the best answer is this dark green box in this matrix. So that's with Joe, when Joe is 68 and Jane's start age is 65.

That yields the greatest savings at the end of the modeling period. And, but these lighter green squares indicate choices that are almost as good. In this case, they're 99% as good. We say, well, what about the ones that are 98% as good? Let's look at that. Okay, there's a bunch more to pick from.

Okay, so that's one. Now let's look at study sensitivities. It's this page here. So here is the fixed rate returns that was established when I ran the analysis just a while ago. And so now we can, we can do some what ifs. It lets you look at the effect of changes in the key parameters in the model.

And the key parameters in question are the ones that are listed down here. And so let's look at, so here when I ran the analysis, it saved the setting of each of those parameters in that gray row right there. And so if I want to change those, I just click this up or down button here.

So if I want to change inflation from three, raise it up, there's 3.1. And you can see that did have an effect at the end of the model, it made a $10,000 difference. I keep clicking it and you can see it's getting worse. Now let's go back, let's revert back to where we started from.

What about if I earn more money on my regular savings? I'm clicking it up at just a 10th of a percent, but across the whole span of the model, you can see what that's doing. What about if I don't earn as much on Roth? Well, let's see. Well, right now I don't have a Roth conversion in, so if I click this, it won't have any effect.

What about Joe's retirement age? He's planning to retire in 2024. What if we add some to it? Like, whoa, that makes a difference. If it works another year, it adds quite a bit of difference only at the end. Okay, but what about social security? Over here, I just said that the optimum answer is 68 for Joe and 65 for Jane.

Let's see if this agrees.