Questions about I-ORP

[orplanner]

... If the PTC is less than the before credits tax, it should be easy to manage that. But since the PTC can exceed what the before credits tax is, you have to allow what remains of the PTC to be non-taxable income. In other words, if my income generates $3k in before credits income tax, and my PTC is $5k, the model would need to set taxes to zero, and chunk $2k into after tax, but not count it as income. Its like the 2k helped pay my bills. ...

That's a good formulation, with nothing non linear as far as I can tell.

How much money per year are we talking about?

I assume that the PTC stops when Medicare kicks in?

The health insurance premium that we are talking about is a constant known to the user?

 

[sengsational]

That's a good formulation, with nothing non linear as far as I can tell.

How much money per year are we talking about?

I assume that the PTC stops when Medicare kicks in?

The health insurance premium that we are talking about is a constant known to the user?

The amount varies, so that would have to be an input. The user would know, or have a pretty good idea of the credit, since the government healthcare exchange estimates it for the upcoming year. There are also calculators that take income and family size to give an estimate. The thread above suggests 10k for some, but others low enough not to bother (just a couple of hundred).

Yes, it would go only for ages less than 65, and only for incomes under the cliff, of course.

 

[hnzw_rui]

Question, is anyone else here having issues with the i-orp website? I'm trying to run some scenarios and it keeps giving me an error if estate > 0.

 

[orplanner]

Question, is anyone else here having issues with the i-orp website? I'm trying to run some scenarios and it keeps giving me an error if estate > 0.

ORP was recently changed to block models with an estate> total assets/2. Many of these models are either infeasible or giving spurious results. Is your planned estate > 0 large relative to your assets?

 

[hnzw_rui]

ORP was recently changed to block models with an estate> total assets/2. Many of these models are either infeasible or giving spurious results. Is your planned estate > 0 large relative to your assets?

I tried an estate of 1 ($1,000) and even that gave me an error.

Current Age: 31
Retirement Age: 55
All Current Account Balances: 0
Maximum Annual Contribution of All Types: 20
Pension Inflation Adjusted: 65

I think it's basing the assets on current account balances.

Your estate 10 is larger than one half your assets 0.

 

[orplanner]

I tried an estate of 1 ($1,000) and even that gave me an error.

Current Age: 31
Retirement Age: 55
All Current Account Balances: 0
Maximum Annual Contribution of All Types: 20
Pension Inflation Adjusted: 65

I think it's basing the assets on current account balances.

You are correct. ORP wanders into a forest of infeasible models when it tries to generate an estate from cash flow, i.e. Social Security. The idea was to head these bad models "off at the pass". If you would care to share your situation with me I will investigate loosening this restriction.

 

[pb4uski]

....ORP wanders into a forest of infeasible models when it tries to generate an estate from cash flow, i.e. Social Security. The idea was to head these bad models "off at the pass". ....

Can you elaborate on that statement?

So for instance, my grandmother's ultra-frugal living expenses were less than her SS and small pension so even in retirement she was saving and building an estate.... ORP would consider her situation "infeasible"?

 

[orplanner]

I tried an estate of 1 ($1,000) and even that gave me an error.

Current Age: 31
Retirement Age: 55
All Current Account Balances: 0
Maximum Annual Contribution of All Types: 20
Pension Inflation Adjusted: 65

I think it's basing the assets on current account balances.

hnzw_rui, you have embarrassed me. I totally forgot about assets built up by you young folks through savings contributions before retirement. Adjustments will be made. I appreciate you bringing this little piece of stupidity to my attention.

 

[orplanner]

Can you elaborate on that statement?

So for instance, my grandmother's ultra-frugal living expenses were less than her SS and small pension so even in retirement she was saving and building an estate.... ORP would consider her situation "infeasible"?

Your grandmother may or may not be infeasible. Most likely any estate she builds up between now and her 105th birthday will be small.

ORP's mission is to maximize spending by minimizing taxes on IRA withdrawals. If Grandma doesn't have an IRA then ORP really has little to offer. That is, optimization is not required and a spreadsheet will serve her needs nicely.

When you think about it most of your retirement income is determined by contract at retirement, e.g. Social Security benefits and pensions. The only real decisions the retiree has to make are regarding savings distributions. Other factors affect the distribution decisions but the Retiree can't change them.

 

[orplanner]

ORP question

Hi everyone,

It has me doing about 25K/year conversion from IRA to Roth, which seems ok until I look at the "Taxes" column. That shows that I'm paying about 24% income tax, and I think that is solely from the the Roth conversion.
I'd never heard of that "10% penalty within 5 years" before ... unless that was just for folks under the age of 59.5? Or is that penalty really true for everyone? If so, it really seems unwise to to convert anything to Roth during those first 5 years? Of course, the vast majority of funds in the IRA have been in there much longer than 5 years, so I don't understand how/why that 10% penalty would apply anyway?

I'm sure I'm misunderstanding something ... maybe I was right, and it's easier to just keep working anyway! ;-)

However, that amount is more than twice what I think I'd ever be able to spend in a year (based on my current spending and lifestyle habits). Is there anyway for me to input that number into I-ORP somewhere, instead of relying on it to figure out how much I should spend each year?

Thanks!

Three interesting questions:

1. Spending one's retirement savings on taxes first thing out of the box is a source of some discomfort. This is addressed at length in a white paper at http://i-orp.com/ModelDescription/Conversions.pdf.
2. The 10% penalty is a non issue in all but extreme cases. Basically ORP's help file grammar could do with some tiding up. The 10% applies only to recent additions to the Roth IRA; recent meaning during the 1st 5 year of retirement. Most optimal plans distribute the Roth IRA after the after-tax is gone and the IRA has been reduced to a low level. Roth IRA distribution occur well after 5 years from the conversion.
3. You can lower your spending by increasing your estate.

 

[hnzw_rui]

hnzw_rui, you have embarrassed me. I totally forgot about assets built up by you young folks through savings contributions before retirement. Adjustments will be made. I appreciate you bringing this little piece of stupidity to my attention.

Cool. Thanks!

 

[orplanner]

I tried an estate of 1 ($1,000) and even that gave me an error.

Current Age: 31
Retirement Age: 55
All Current Account Balances: 0
Maximum Annual Contribution of All Types: 20
Pension Inflation Adjusted: 65

I think it's basing the assets on current account balances.

I have made the CGI script a little smarter; namely it will recognize contributions to savings before retirement as assets and not give out these bogus error messages.

Thanks for your quality assurance assistance, hnzw_rui.

 

[orplanner]

It goes against what i-orp is all about! The whole purpose is for it to optimize your actions so you can end with whatever ending balance you want, and spend the rest! I'd rather he spend his time modeling the ACA into the tax calculations. We already have a "cliff avoidance" , which is awesome.

Your wish is my command. i-orp.com/BetaPTC.html is a beta version of ORP with PTC stuffed into it. I leave it to you to judge the correctness of it and its relevance to reality.

 

[sengsational]

I'm just catching this post. Actually caught the change after helping a family member. They are not candidates for the new feature, and I've not had a chance yet to test. But I did notice that the glide path input seems to be missing some columns? Or am I missing something. I thought there were 2 values each for IRA, Roth, taxable. Phone browser here, so it might be that.

 

[orplanner]

I'm just catching this post. Actually caught the change after helping a family member. They are not candidates for the new feature, and I've not had a chance yet to test. But I did notice that the glide path input seems to be missing some columns? Or am I missing something. I thought there were 2 values each for IRA, Roth, taxable. Phone browser here, so it might be that.

The change is an attempt to fix some hot water I was getting into. Turns out it was a bit of a dumb idea. I have hatched a better scheme which will be installed in a day or so. Sorry for the inconvenience.

 

[sengsational]

Your wish is my command. i-orp.com/BetaPTC.html is a beta version of ORP with PTC stuffed into it. I leave it to you to judge the correctness of it and its relevance to reality.

This enhancement enabled this bit of analysis...the PTC is more than twice as valuable as Roth Conversions for my situation. It's percent of annual spend increase.

 

[gofan316]

@orplanner,

I may get something wrong here, or the software may have a bug. For the ACA/PTC line, my understanding is you enter the estimate credit amount there, for example 5 for $5000 Federal tax credit. By entering a number, it also enables the ORP to not generate too much taxable income (such as limiting Roth conversion), to keep O-MAGI from the "cliff".

When I enable Roth conversion, then enable ACA, the results are in line (however, the 42k Roth conversion and 26k income are a bit above the 62k cliff?)

But if I disable Roth conversion, but enable ACA by entering a number (I want to to see the effect of not doing any Roth conversion --- thus reduce taxes further, but still utilizing ACA credit), ORP increases spending level substantially, and withdrew from TaxDef account to supply spending, even though I have enough in the after-tax account, thus paying a lot of taxes at the beginning of the retirement (for age below 65). That does not seem correct.

I have also sent you email with the model ID.

 

[orplanner]

@orplanner,

I may get something wrong here, or the software may have a bug. For the ACA/PTC line, my understanding is you enter the estimate credit amount there, for example 5 for $5000 Federal tax credit. By entering a number, it also enables the ORP to not generate too much taxable income (such as limiting Roth conversion), to keep O-MAGI from the "cliff".

When I enable Roth conversion, then enable ACA, the results are in line (however, the 42k Roth conversion and 26k income are a bit above the 62k cliff?)

But if I disable Roth conversion, but enable ACA by entering a number (I want to to see the effect of not doing any Roth conversion --- thus reduce taxes further, but still utilizing ACA credit), ORP increases spending level substantially, and withdrew from TaxDef account to supply spending, even though I have enough in the after-tax account, thus paying a lot of taxes at the beginning of the retirement (for age below 65). That does not seem correct.

I have also sent you email with the model ID.

I apologize for the delay in responding but your email, with the Model Id, never arrived. I would dearly love to see that run. The results you report do not seem correct. Disabling conversions should reduce spending a little.

Please re-transmit.