Surprising Results from ESPlanner

[ImThinkin2019]

Hi All-

I have used many different programs including I-orp, csplanner, *******, Fidelity Income Planner, Vanguard's Financial Engines, a Vanguard free financial consultant, and bigfoot's google spreadsheet. In addition, like most of us, I created my own spreadsheet.

After doing all this I purchased ES Planner, to get more precise Social Security estimates.

Now that I've used it for a while I really like it, much better than any other program. The two features I like the most are the social security estimates and the tax calculations which include the AMT. Most of the other programs do not calculate taxes or if they do, they don't account for the AMT.

There are two interesting conclusions from ESPlanner that are contrary to what we thought. We thought others might be interested. (Note, most of our savings are in tax-deferred vehicles, so this affects our results.)

1. If we retire at 60, it's better for us to take social security at 62. This is because doing this minimizes taxes in later years. Surprising! - (We had originally thought we should take SS at 70, with me filing and suspending and my DW taking spousal benefits from 67-70.)
2. If we retire at 60, it's better for us to Roth convert a lot of tax-deferred money early, even if we "enter AMT land". (I thought it would be better to avoid AMT so this was surprising.)

I have modeled our Roth conversions in ES Planner and although it's not super easy it's really not hard. So I would not consider that a major impediment.

The $200 we spent on the program will be paid for in the first year we retire, absolutely. Just the answer on SS timing will give us a huge return on the investment.

 

[Chuckanut]

Taxes in retirement have been a confusing factor for me also. I noticed that ORP has me aggressively converting all my Reg IRA funds before taking SS at age 70, even if I pay 25% taxes on some of the converted money.

What final age did you use when running ESPlanner? Did your results differ if you lived 5-10 years longer or less? Just curious.

 

[ImThinkin2019]

Hi Chuckanut-

In answer to your "final age" question, we used 100. We didn't try any other ages.

I don't feel like I'll make that but we'll see. Just waiting for the ACA to mature to see what they allow for assisted croaking. Maybe this or when I'm ready I'll take a winter camping trip, consume some blackberry brandy, and have a snooze.

 

[jebmke]

Hi Chuckanut-

In answer to your "final age" question, we used 100.

I don't feel like I'll make that but we'll see. Just waiting for the ACA to mature to see what they allow for assisted croaking. Maybe this or when I'm ready I'll take a winter camping trip, consume some blackberry brandy, and have a snooze.

Or a bottle of tequila and a lawn chair to the Bay of Fundy at low tide.

 

[bld999]

Or a bottle of tequila and a lawn chair to the Bay of Fundy at low tide.

Don't forget the oyster knife.

 

[Options]

I bought esplanner last year after someone posted they would not have made the decision to retire without it. I too think it's one of the best tools out there. Since buying it, I've been reading a lot on consumption smoothing. Esplanner served to reinforce my retirement confidence as well.

 

[omni550]

Question for Imthinkin and Options:

Are you planning to renew your ESPlanner subscription?

omni

 

[ImThinkin2019]

Yes, I will renew it probably at least every 2 years until I retire, which will be in about 4 years. After that, not sure.

 

[sengsational]

I am pretty far from any option with social security, and I couldn't make ESPlanner align with my reality, so I don't use it. The output was somewhat opaque too. I do like the premise, in general, but it needs an update to include the current tax law, ACA wrangling, etc.

 

[just walk away]

Another vote for ESP planner. I haven't worked with it enough yet to figure out how to model Roth conversions and I wish you could model withdrawals from both taxable and 401K better. So far, I can only withdraw taxable or 401k first until it is depleted then the other one. I would like to withdraw part of my 401k to a specificed tax bracket then use taxable funds for each year. I am not sure that I will follow the program's advice since I can't imagine spending that much and it suggests for us spending down our 401k and taxable to take SS at 70. But, I find it useful and it also convinced me to retiree as well. I have renewed once which was last year when I retired.

 

[Corporateburnout]

I have been using ESPlanner for a couple of years now and upgraded once. I like the tool for SS and tax estimates.

 

[Options]

Question for Imthinkin and Options:

Are you planning to renew your ESPlanner subscription?

omni

Yes but probably not for a couple of years. Renewing would be beneficial to reflect tax updates. BTW, estimated taxes throughout retirement was one of the best features that I liked. Consumption smoothing is an entirely different approach than SWR. While I've lost track of how many calculators I've used, ESPlanner and FIDO remain my favorites.

I am pretty far from any option with social security, and I couldn't make ESPlanner align with my reality, so I don't use it. The output was somewhat opaque too. I do like the premise, in general, but it needs an update to include the current tax law, ACA wrangling, etc.

I didn't find ESPlaner opaque at all. It produced the most detailed reports of anything I've used, including a lifetime spending floor, along with various possible spending trajectories. What has helped me to get the most out of it is continued research regarding consumption smoothing, and Wade Pfau's blog is among the best. I am not discounting the safe withdrawal rate strategy; to the contrary, after reading Pfau's blog I'm using a hybrid approach, fundamental to which is consumption smoothing. It all happens to work in my case.

As to the ACA, this is healthcare spending and is accounted for.

 

[smurray5991]

Just curious for those who have purchased ESPlanner, do you use regular, Pro, or Plus versions?

 

[Corporateburnout]

Just curious for those who have purchased ESPlanner, do you use regular, Pro, or Plus versions?

I purchased the Plus version as it has the Monte Carlo simulation and upside investing ( I am still experimenting with).

 

[just walk away]

I also got the "plus" version.

 

[ImThinkin2019]

I got the plus version as well.

 

[ducky911]

I bought the pro but didn't use (understand) the upside monte carlo stuff.

I really like esplanner.

 

[Options]

Plus version. I took the Pro version to be geared more toward use by financial planners for their clients. I like Dick Cotton's blog, The Retirement Cafe, because he explains many concepts linked to consumption smoothing (which Kotlikoff based ESPlanner on). In Monday's entry (5/12), Cotton references modelling spending with ESPlanner, and here's another excellent entry regarding spending probabilities I found most informative:

The Retirement Cafe: Diminishing Returns

 

[NanoSour]

I bought esplanner last year after someone posted they would not have made the decision to retire without it. I too think it's one of the best tools out there. Since buying it, I've been reading a lot on consumption smoothing. Esplanner served to reinforce my retirement confidence as well.

That was more than likely me that would not have retired without the guidance of ESPlanner. Been retired now for 10 months and still highly recommend the software. I use the Plus version and although it takes some effort to really understand your inputs and its output, it's well worth the time if you are seriously considering early retirement.

I did pay the $50 renewal fee after my years subscription was up.

 

[sengsational]

I didn't find ESPlaner opaque at all. It produced the most detailed reports of anything I've used, including a lifetime spending floor, along with various possible spending trajectories. What has helped me to get the most out of it is continued research regarding consumption smoothing, and Wade Pfau's blog is among the best. I am not discounting the safe withdrawal rate strategy; to the contrary, after reading Pfau's blog I'm using a hybrid approach, fundamental to which is consumption smoothing. It all happens to work in my case.

As to the ACA, this is healthcare spending and is accounted for.

In order to optimize, the program would have to take into consideration the ACA subsidies. It does not do that, so for people who are able to get ACA subsidies, the results are likely not optimal. As discussed in other threads, the ACA subsidies can be considered yet another layer of complexity on top of the federal taxes.

As to the opacity of the output, I tried to get it into a spreadsheet (since the application did not do what I neede it to do). But when I tried that, I found that there was no way to model the output in a spreadsheet. At least I couldn't figure out how to make sense of it. MMy goal was to run a simplified plan in ESPlanner, i-orp, and other tools and see how similar I could get the results. I could readily understand the i-orp output, but can't say the same for ESPlanner.

 

[Khufu]

I have been using Esplanner for seven years. Found it indispensable for planning retirement including evaluating the benefits of expatriating. It also helped me recognize the need to do Roth conversions between retirement age and age 70, when SS and RMDs both kick in. Planning Roth conversions with Esplanner is tricky especially if you plan to do a series of partial conversions. I had to ignore the increased recommendation for life insurance that was an artifact of the method. At this point I am on track with my Roth conversions.

I happily pay the $50 support each year and plan to continue to do so indefinitely. Esplanner support is the best in the world. I have myself been on the phone with Larry Kotlikoff on several occasions getting his recommendations on how to handle some situation. What other software support offers the personal services of a published, well-known economist?

The best feature of Esplanner is focusing the user's attention on disposable income as the planning goal, rather than net worth and SWR. Doing so makes the decision to delay SS quite transparent, for one example.

I am surprised that the OP found taking SS at 62 to be an improvement. I wonder if that is still the case even when he schedules Roth conversions during the retirement years before age 70?

 

[ImThinkin2019]

[I am surprised that the OP found taking SS at 62 to be an improvement. I wonder if that is still the case even when he schedules Roth conversions during the retirement years before age 70?]

OP here. I was surprised as well when I found that SS at 62 was the better choice for us, at least with the constraints we assumed. I think most likely the issue is that almost all of our savings are in 401k and IRA accounts. It will not be possible to get all of this rolled over into Roths during our 60's. Since some will remain subject to RMD's once we hit 70 we benefit from having lower SS payments at that time.

 

[Khufu]

[I am surprised that the OP found taking SS at 62 to be an improvement. I wonder if that is still the case even when he schedules Roth conversions during the retirement years before age 70?]

OP here. I was surprised as well when I found that SS at 62 was the better choice for us, at least with the constraints we assumed. I think most likely the issue is that almost all of our savings are in 401k and IRA accounts. It will not be possible to get all of this rolled over into Roths during our 60's. Since some will remain subject to RMD's once we hit 70 we benefit from having lower SS payments at that time.

I understand the concept, but this means that, even with the Roth conversions, you can't avoid something like an 85% tax rate on your SS benefits? Or are you assuming a very high rate of return on your portfolio to the point that taking a reduced SS benefit early would pay off? My own Roth conversions will not eliminate my TIRA so I will be faced with RMDs, but in our case delaying SS strongly pays off. That could be because my wifer is younger and her PIA will be less than her spousal benefit.

 

[ImThinkin2019]

I understand the concept, but this means that, even with the Roth conversions, you can't avoid something like an 85% tax rate on your SS benefits? Or are you assuming a very high rate of return on your portfolio to the point that taking a reduced SS benefit early would pay off? My own Roth conversions will not eliminate my TIRA so I will be faced with RMDs, but in our case delaying SS strongly pays off. That could be because my wifer is younger and her PIA will be less than her spousal benefit.

Thanks very much for this discussion. I really appreciate it. Anything we can do to further our understanding is beneficial to all of us.

Our situation is that my DW is 1 year younger than me and will get about the same SS benefit as I do. Our SS benefits are pretty high because we have almost always made the maximum contribution. (We're both engineers.)

We originally made a plan which had us taking SS at 70, with me filing and suspending at my full retirement age to allow her to take spousal benefits up until she hit 70. Then she would take her own benefit which would be almost double the spousal.

Along with the above I modeled Roth conversions starting the year after we retire (starting age 61), converting as much as possible in the years before age 70, plus some every year until about 80. The amount converted each year was just into AMT land, which is about what we thought we could handle for income taxes without taking from the conversion amount. Our living standard was OK with the resultant plan.

Once I had that working, then just for kicks I tested taking SS at 62 and to my surprise our living standard went up. I then (clumsily) re-optimized the Roth conversion amount and found that I could get more converted over with this method as well.

It seems to be all about taxes. That's what I think makes the difference.

I've done this a few times fooling around with the Roth conversion pattern and at least with the scenarios I've modeled my conclusions remain the same. There is some comfort in taking SS at 62 because near term our confidence that we'll get the predicted amount is higher that far term, and if benefits are cut, we'd probably be less affected (10% of a small number is less than 10% of a big number).

 

[Brett_Cameron]

ImThinkin2019: That does not surprise me. My humongous spreadsheet shows that taking SS at age 62 minimizes taxes paid.

It also results in highest FIRECalc success rate and highest remaining savings balance at the end of projection.