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Old 11-14-2015, 01:22 PM   #41
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I've decided to work with what I know today in determining conversion strategy.
Sounds like a good (the only?) strategy. What makes it easier to do is that you're going to run the analysis periodically; no need to execute the entire plan you ran this year. The next analysis will take into account changes to laws and markets. In other words, you put a plan together that covers a lifetime, but you only execute, say, one year of it before re-evaluating. Could 'something big' come along that invalidates the entire long-term plan? Could that something big make what you did this year non-optimal. Sure. But if it was in the ballpark before, it's probably still in the ballpark after the markets and laws gyrate.

If you haven't done some conversion 'what-if' runs on i-orp, I'd suggest that.
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Old 11-15-2015, 09:51 AM   #42
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The i-orp tool now has the capability to run an optimization with PPACA "on" (taking advantage of the premium tax credit and limiting income) as well as with or without Roth conversions. Everyone's situation is different; some people get very little benefit from conversions and/or PPACA, others more. I'm a bird in the hand kind of guy, and PPACA currently comes out on top and I see the benefit each year, which is why I'm going with the PPACA over larger Roth conversions.
Same here - not doing conversions and keeping MAGI below 150% of FPL for a family of two to max out ACA Silver plan savings (we have lots of ways to live frugally while still enjoying vacations). I can't ignore the almost $900 a month that I'm getting out of this starting next year, not to mention the WAY lower out of pocket HC costs if something does happen to us during the year. I'm talking plans with $500 individual deductibles and $1500 max family OOP vs. a Bronze with $6450 and $13k.

Add that to lost growth on investments due to taxes on conversions and it tilts a lot more to ACA subsidies if you can manage income below 250% FPL, not to mention that ACA plans are getting worse every year so you *could* be better off getting a much better cost-shared Silver plan with that income.

My plan when the tax torpedo hits at 70 1/2 is to give as much as I can to charities to negate the tax hit. I'm not interested in a leaving a large legacy to my children.

Obviously, YMMV.
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Old 11-15-2015, 10:23 AM   #43
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...................................

Add that to lost growth on investments due to taxes on conversions and it tilts a lot more to ACA subsidies.......................................
Your conclusion about not doing conversions due to ACA considerations may very well be true but I am not sure the above is a valid booster argument:
1)If you have 1000 in TIRA and leave it there and TIRA doubles, you will have 2000 in TIRA
2)If you convert 1000 in TIRA to Roth w/15% tax rate, you have 850 in Roth. If Roth doubles you have 1700. Lost growth is 150 because you put 150 less in Roth at the start.

Is the TIRA 2000 better than the Roth 1700? seems to be comparing Roth apples(AT) and TIRA bananas (BT) , no?
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Old 11-15-2015, 11:26 AM   #44
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Your conclusion about not doing conversions due to ACA considerations may very well be true but I am not sure the above is a valid booster argument:
1)If you have 1000 in TIRA and leave it there and TIRA doubles, you will have 2000 in TIRA
2)If you convert 1000 in TIRA to Roth w/15% tax rate, you have 850 in Roth. If Roth doubles you have 1700. Lost growth is 150 because you put 150 less in Roth at the start.

Is the TIRA 2000 better than the Roth 1700? seems to be comparing Roth apples(AT) and TIRA bananas (BT) , no?
If you stay in the 15% bracket, the tIRA 2000 will be worth only 1700 when you cash it out. In this case, banana = apple.

If withdrawing the tIRA 2000 causes you to enter the 25% tax bracket, then banana < apple.

If the market stays as lousy as it has been recently, I guess I will not have to worry much about how much to do Roth conversions. I can have either banana or apple, and it makes no difference.
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Old 11-15-2015, 07:18 PM   #45
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If you stay in the 15% bracket, the tIRA 2000 will be worth only 1700 when you cash it out. In this case, banana = apple.

If withdrawing the tIRA 2000 causes you to enter the 25% tax bracket, then banana < apple.

If the market stays as lousy as it has been recently, I guess I will not have to worry much about how much to do Roth conversions. I can have either banana or apple, and it makes no difference.
Yes, if Mr. Bogle is correct in his 10 year forecast I suspect that the Roth conversion discussion will join the pantheon of how many angels can dance on the head of a pin... i.e. take SS at 62/66/70? or pay off the mortgage?
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Old 11-15-2015, 07:34 PM   #46
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I played a bit with I-ORP optimizer. Its recommendation for Roth conversion depends on what I enter as the projection for stock gain. At the default of 6% nominal gain over 2.5% inflation, it tells me to go max out to fill up the 25% bracket. When I cut the gain down to about 4%, it cuts back to the 15% bracket...
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...Your projections for the size of your taxable accounts and your IRAs (and thus RMDs) are likely to be highly dependent on how equities and bonds do for the next 15 years. Nobody knows how they'll do, and being off by a few percent per year can make a big difference in the size of your future taxes. Maybe you won't have a tax problem at all--maybe equities and bonds will do very poorly and you'll be on one of those FIRECalc lines we all dread....
Emphasis added

This has always been my issue with i-orp. All outputs are based on guesstimates of future PF growth. As samclem wisely points out, if your guesstimate (inputs) is off by a few percent, it will affect your output. In my view, this makes i-orp's recommendations at best ball park estimates, if not unreliable. As they say, garbage in, garbage out.
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Old 11-15-2015, 07:42 PM   #47
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This has always been my issue with i-orp. All outputs are based on guesstimates of future PF growth. As samclem wisely points out, if your guesstimate (inputs) is off by a few percent, it will affect your output. In my view, this makes i-orp's recommendations at best ball park estimates, if not unreliable. As they say, garbage in, garbage out.

True of most calculations we do for estimating. I don't see I-orp as any worse than any other tool we use in that regard. But one has to make some basis for decisions. And that will include assumptions that may prove wrong over time.


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Old 11-15-2015, 07:58 PM   #48
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True of most calculations we do for estimating. I don't see I-orp as any worse than any other tool we use in that regard. But one has to make some basis for decisions. And that will include assumptions that may prove wrong over time.
The next step is to examine the impact of being incorrect in each direction. If we overestimated the rate of portfolio growth, then we should have converted up to a lower level and the impact on QOL is possibly significant (because our investments have done poorly and we gave money away that is now needed). If we underestimated the rate of growth, there are no dire consequence (because our portfolio is fat) and, while we pay more taxes than optimum (in retrospect), we're still money ahead vs our planning.
So, I'll be very conservative with these conversions.
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Old 11-15-2015, 08:51 PM   #49
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The next step is to examine the impact of being incorrect in each direction. If we overestimated the rate of portfolio growth, then we should have converted up to a lower level and the impact on QOL is possibly significant (because our investments have done poorly and we gave money away that is now needed). If we underestimated the rate of growth, there are no dire consequence (because our portfolio is fat) and, while we pay more taxes than optimum (in retrospect), we're still money ahead vs our planning.
So, I'll be very conservative with these conversions.
+1. It's not just the Roth conversions but accumulation, too.

My bad scenario favors maxing out tax deferred accounts with excess savings going towards Roth IRA then taxable versus putting everything in Roth 401k/403b/457b. The risk of prioritizing Roth is a much smaller portfolio.

My good scenario just puts me in a higher tax bracket come RMD time.

Between the two, I'd rather pay the higher taxes versus not have enough savings to live on.
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Old 11-15-2015, 09:07 PM   #50
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Guess I'm not too concerned about the variance in my I-orp and other calculations when run using various reasonable assumptions. I'll use whatever I consider the most likely scenario to guide financial moves for that year. Then rerun the calcs each year using any new data and adjust plans as appropriate based on the results. So I may be doing aggressive Roth conversions for a couple years and then back off later on (for example).


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Old 11-16-2015, 08:16 AM   #51
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The next step is to examine the impact of being incorrect in each direction. If we overestimated the rate of portfolio growth, then we should have converted up to a lower level and the impact on QOL is possibly significant (because our investments have done poorly and we gave money away that is now needed). If we underestimated the rate of growth, there are no dire consequence (because our portfolio is fat) and, while we pay more taxes than optimum (in retrospect), we're still money ahead vs our planning.
So, I'll be very conservative with these conversions.
+1
This. And Aeowyn's annual reevaluation strategy above makes sense as well (as opposed to relying blindly on i-orp's recommendations). If i-orp is an "educational tool" (much like FIDO is now), then yes I'll agree it can be educational (at most--again, like FIDO).
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Old 11-16-2015, 08:30 AM   #52
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I like i-orp a lot, the same as FIRECalc. They do not and cannot promise to give you any guarantee of the right thing to do, as that would be trying to predict the future. But they do give you a feel for how each factor would influence the result. It's up to you to tweak and modify what you have control of, in response to how the future is unfolding.

About the choice between depletion of your stash and its preservation, there is of course a compromise. You can set FIRECalc and I-ORP to save 1/2 of your stash instead of spending it all in 30 years. That should give you enough of a buffer so you will not feel broke near the end and worry about outlasting your money. And that should leave a good enough inheritance for yous heirs, plus your home.
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Old 11-17-2015, 08:36 AM   #53
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It's easy for me to understand and agree with all of wisdom here on this thread since i-orp was mentioned. A lot of concepts that get to the heart of using tools like i-orp. If I had to pick one idea to call-out, I'd say it's the consequences of guessing wrong on the market movement. Maybe I picked that concept because I've usually left that at a conservative level, but I didn't concentrate on what a change there would do.

This thread gave me a 'to-do' item: Change the return and see what it does to this year. Since it will be picking an optimal plan under various rates of return, if the result doesn't change what I'm going to do in the immediate future, then no need to worry to much about that variable.
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Old 11-17-2015, 09:21 AM   #54
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I love iOrp for a retirement calculator. Playing with the numbers seems endless! One thing I am wondering is if there is a way to save the parameters I entered so next time I want to use it I can pick up where I left off?

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Old 11-17-2015, 09:30 AM   #55
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I love iOrp for a retirement calculator. Playing with the numbers seems endless! One thing I am wondering is if there is a way to save the parameters I entered so next time I want to use it I can pick up where I left off?
Bottom left right beside the "Run ORP" button, there's a check box for "Save Parameters".
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Old 11-17-2015, 12:32 PM   #56
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Bottom left right beside the "Run ORP" button, there's a check box for "Save Parameters".
Excellent! Thanks, that is exactly what I was looking for.
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Old 11-17-2015, 01:29 PM   #57
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I like i-orp a lot, the same as FIRECalc. They do not and cannot promise to give you any guarantee of the right thing to do, as that would be trying to predict the future. But they do give you a feel for how each factor would influence the result. It's up to you to tweak and modify what you have control of, in response to how the future is unfolding.

About the choice between depletion of your stash and its preservation, there is of course a compromise. You can set FIRECalc and I-ORP to save 1/2 of your stash instead of spending it all in 30 years. That should give you enough of a buffer so you will not feel broke near the end and worry about outlasting your money. And that should leave a good enough inheritance for yous heirs, plus your home.
You can do the same with FIDO (it's called "padding", or "plan b and c or whatever"), which isn't a bad idea when using any of these "educational tools". My point is, I once read somewhere you can keep beating these calculators to death until you finally make them provide you with the result you want. With these "tools", we are trying to reduce the uncertainty of the future. Uncertainty always resolves over time, which is why I like Aeowyn's strategy above of reviewing these things annually because the uncertainty of financing a lengthy retirement resolves as time progresses (mixed with samclem's post #48 on acting conseratively). This may seem obvious, but an over reliance on calculators to resolve uncertainty can lead to disastrous results.

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... the consequences of guessing wrong on the market movement...
Yep. And those consequences can be huge, which is why I've never personally liked deterministic calculators. No one can predict the future. Endless research has shown that all efforts to even guess the future are futile (which is why I don't understand what all of the brouhaha is about concerning Bogle's latest prediction--he may get it right, he may get it wrong, even he has said so).

It's been said the purpose of astrology is to make forecasters look respectable. This would apply to any attempt by me to plug in future market returns in any calculator. Anything "plugged in" would be a guess, nothing more, nothing less.
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