Surprising Results from 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by Khufu 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.

[ducky911]

I been playing again with esplanner and find that they are way off on income tax owed. Most of my income is either deferred or dividends so I pay little tax. Esplaner for this year has a figure 8 time higher.

[MooreBonds]

Quote:

Originally Posted by ducky911 I been playing again with esplanner and find that they are way off on income tax owed. Most of my income is either deferred or dividends so I pay little tax. Esplaner for this year has a figure 8 time higher.

So are you saying that ESPlaner doesn't factor in the effect of Qualified Dividends and Long-term capital gains being taxed at 0% for 10%/15% brackets? This would be a huge issue if that's the case...

[ImThinkin2019]

Quote:

Originally Posted by 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.

Hi Brett, thanks. This is very interesting. It sounds like our objectives and conclusions are similar. I want to have a reasonable living standard and end up with as much rolled into Roths as possible when we croak.

[walkinwood]

Quote:

Originally Posted by ImThinkin2019 ... 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.) ...

What is the percentage improvement in your living standard as a result of taking SS early? And are you enabling monte-carlo?

My concern in doing this is that the results are based on either a fixed annual return on investments or a monte-carlo calculation. What happens if reality is different? A higher SS payout at 70 is more certain, in my mind, than expecting reality to mirror our projections.

On the other hand if the calculation show that it is better to take SS at 62 for the vast majority of monte-carlo tracks (is that the right word?), then maybe it makes sense to take the risk.

[Likes_to_Lurk]

I have used ESPlanner for a year or so and overall, I like it. However, like ducky911 above, I am not getting an accurate tax calculation. It does not have the capability to incorporate NYC income taxes and it does not take into account the tax deductibility of my co-op maintenance. Federal taxes are too high and local taxes are ignored.

I like the consumption smoothing concept, and for overall planning purposes, it is fine. (the difference in discretionary spending is a small %) However, I do not use it where taxes are critical, such as Roth conversions.

[Likes_to_Lurk]

Ducky11, I think there is a place to enter % of investment income that represents capital gains/ dividends. It is in the tax tab.

[ducky911]

Quote:

Originally Posted by Likes_to_Lurk Ducky11, I think there is a place to enter % of investment income that represents capital gains/ dividends. It is in the tax tab.

thanks that helps

[ImThinkin2019]

Quote:

Originally Posted by walkinwood What is the percentage improvement in your living standard as a result of taking SS early? And are you enabling monte-carlo? My concern in doing this is that the results are based on either a fixed annual return on investments or a monte-carlo calculation. What happens if reality is different? A higher SS payout at 70 is more certain, in my mind, than expecting reality to mirror our projections. On the other hand if the calculation show that it is better to take SS at 62 for the vast majority of monte-carlo tracks (is that the right word?), then maybe it makes sense to take the risk.

Thanks for your thinking and comments.

I did not run the Monte Carlo analysis yet. Just a fixed rate of return about 1.5% lower than I'm getting right now.

Regarding the improvement in living standard we have enough money that without pulling money out for Roth conversion to leave to our kids, we actually have too much income. So the modeling I'm doing is to see how much I can roll over and still maintain a living standard that we predict we'll need (about $4500-$5000/month after income taxes, medical, and property tax expenses)

I just this minute did one calculation based on heavy Roth conversions in the early years and with this conversion curve ther's about a 2% reduction in our living standard if we wait to take SS at our full retirement age and more like a 12% reduction if we wait till 70. If I file and suspend and DW takes spousal until 70 the reduction in living standard drops from 12% to 8%.

I will run Monte Carlo analysis and report my results in the next few days.

[Options]

Berstein's when you've won the game why keep playing writings and a presentation elsewhere regarding investor professed risk tolerance and actual risk tolerance varying greatly depending on when investors are polled (i.e., reported risk tolerance and resulting behavior was much higher during up markets and correspondingly much lower during down markets) got me thinking about my own risk. If most investors underestimate their risk tolerance, particularly in times like 2008, what does that portend for my own behavior when the next bear comes clawing? So I decided to go back to ESP and analyze how, having "won the game", taking money off the casino table would affect my standard of living.

I've run both Monte Carlo and upside investing analysis in ESP. I use the "spend conservatively" option in Monte Carlo simulation, which assumes I'll always earn a zero return on investments. For upside investing, I use only 2% (current TIPS) return on safe investments. The analysis and reports were extremely helpful in making decisions.

What I really like is the net worth report, which shows what my NW would look like year by year until plan end if my investments earned nothing. I asked myself how I would feel if, 5, 10, 15, 20 years into retirement if my NW looked like what was reported. This helped me decide that I could reduce my equity exposure by 10% (from 50% to 40%) and still not negatively impact my suggested standard of living (which happens to be many thousand above my minimum expenses, including discretionary, anyway).

The trajectory and probability reports I also find very helpful with respect to displaying possible future scenarios of what can happen if I get lucky in the stock market casino (upside investing). Who knows? Maybe we're at the beginning of a great bull market and I'll get all those extra upside investing spending dollars? But what if we're not? For me, reducing equity exposure does in fact reduce my upside spending, but I'm more concerned with risk reduction than extra spending or leaving a large estate. Without ESP, I don't know where I could find the tools to conduct such a helpful analysis. I'm definitely glad I bought it.

[Cat-tirement]

For some time now, I have been assuming that our best SS strategy would be for me to file and suspend at FRA, have DW take spousal at her FRA, then both get max benefits at 70. After reading this thread I played around with some other SS approaches in i-ORP and FireCalc. What seemed to come out best for us is for me to still wait until 70, but have DW take her own benefit at FRA. Not a huge difference (3-5 thousand more in income a year), but enough to make me look more closely when we get into our 60's. I'll have to try this with the Fido RIP too.

[NoiseBoy]

When I run Firecalc in solve for X mode where I let it tell me how much disposable income I could have given my inputs, taking social security at 62 results in higher lifetime income for me. I am single and my SS benefits will be reduced by WEP so perhaps that explains it? To date I have only used Firecalc to model my future, but I am going to take a look at ESP. It sounds like an interesting tool that may be able to help me decide on how much disposable income I want to have when I retire.

[Fishingmn]

Does anyone that use ESP have rental properties?

I have 10 properties that are going to fund 60-70% of our expenses in retirement. I'm struggling a bit with how to project things like when to claim SS, RMD's, Roth conversions and ACA subsidies.

We are early 50's now, looking to retire in 2-3 years. Rental income is around $75k but $50k after depreciation so it takes up a chunk of space for ACA subsidies and Roth conversions and we have quite a bit in IRA's/401k.

Just trying to see if ESP can help with modeling out the plan while incorporating the real estate component.

[ducky911]

Quote:

Originally Posted by Fishingmn Does anyone that use ESP have rental properties? I have 10 properties that are going to fund 60-70% of our expenses in retirement. I'm struggling a bit with how to project things like when to claim SS, RMD's, Roth conversions and ACA subsidies. We are early 50's now, looking to retire in 2-3 years. Rental income is around $75k but $50k after depreciation so it takes up a chunk of space for ACA subsidies and Roth conversions and we have quite a bit in IRA's/401k. Just trying to see if ESP can help with modeling out the plan while incorporating the real estate component.

esplanner is pretty good with rental properties. It allows you a separate page for each and a place for cost and income. Also allow you to say when you would like to sell and estimate inflation of value costs and income.

I have played around with when to sell as I would like to sell some before I turn 70 (8 years)...I do not think it is perfect but I am glad I have it.

I just get my last years tax form out and all the info on income and expenses are right there and a easy job to input.

Edit. I just check and it has only 5 spots for rentals. I do not know if you could add more or have to go through the pain of grouping them . I guess you could put you 5 best keeper together and the ones you want to sell separate.

[Fishingmn]

Thanks Ducky - very helpful

[Don46]

I bought ESPlanner, the standard version, a couple of years ago and I like most of what it does. I found that the tax estimates were way high for me. I can pretty much predict what my taxable income is going to be at least when I hit 70.5 in another three years: it will be MRD plus 85 percent of SS plus dividends, interest, and capital gains, which will vary but up or down from what I'm presently earning and probably down for LTCG.
ESPlanner also seemed on health insurance cost estimates.

I did not renew, but I'd appreciate those who have telling me why I should consider doing that. Are there important updates I am missing?