Fidelity Retirement Analysis

[craigbro63]

Taxman59, exactly what I was looking for! Thanks for the post

 

[Ncc1701]

Hi All, For those of you who prefer using the Fidelity RIP tool compared to FireCalc, does anyone know what the differences are between my essential expense number and the total expense number calculated by the tool? I would assume that the total includes taxes but I'm not certain if that's the only difference and the methodology document doesn't provide any guidance.

Thanks!

 

[Jerry1]

The difference between essential and total is discretionary expenses. I’m assuming by this question that you are not using the detailed expenses section of the tool. In there, you can enter in all your budgeted expenses. They have a pretty thorough sheet and one breakout is essential vs discretionary. If you let the tool take a total budget and project on that, it will infer a breakout. Not sure how to get any detail on how it is derived. Best to enter in the expenses yourself using the detailed expenses sheet.

 

[Ncc1701]

Thanks Jerry, but for simplicity, I just put everything under Essential (no detailed breakdown) even though some may be discretionary. So as far as the tool is concerned, I don't have discretionary expenses but it still tells me my total expenses are higher but here is no breakdown. I budgeted $9000/month in essential expenses which works out to $108K per year but it's telling me that my total expenses are $123K

 

[Jerry1]

I think that’s just first year inflation. It may also be taxes, but I recall having the same question. It’s been awhile though since I’ve used the tool. I think it was mostly explained by inflation. Look at the detail cash flow and you’ll see that the first year of the analysis is not the same as your budget. I think you can force it by moving your retirement date back. Again, that’s just my recollection. Hope I’m not recalling incorrectly.

 

[nwsteve]

RIP does include an allowance for fed and state taxes. It has a default but you can make the amount any percentage you want. The tax input shows up towards the bottom of the detail page as a separate link to access

 

[scrabbler1]

Being a Fido client already, I met with my Account executive for the first time in early 2008 while I was in the midst of planning an early retirement. (I had not yet heard of this forum but had seen another, less used one.) At the meeting, she entered my data into the RIP program. (I was not yet using the Fido website much for account activity, only for research.) She showed me the report which pretty much confirmed what I already knew - my financial picture only improves after I turn 60, so the main challenge to make my ER work was to get to age 60 intact. She gave me the thumbs up to pursue ER, my first outside confirmation that I hadn't missed anything in my own spreadsheets.


I have been switched to other Account executives over the years, but I have also gotten better at updating the RIP program myself. Still, when I meet with my own AE, we update it to reflect any significant changes in my financial picture, and there have been several in the 12 years I have been retired. But none of those changes makes my long-term picture look much different from before - once my "reinforcements" begin to arrive (unfettered access to my IRA, my frozen company pension, and SS),the asset/income line rises a lot while the expense line rises far less.


The RIP program itself has all the features others have written about. I have been able to enter detailed expenses as well as income/asset sources outside of my Fido portfolio and tax rates. The Fido program didn't seem to have any feature to determine one's ACA premium subsidy, though, the only thing I wished it had. I'd have to figure it out myself and build its effect into the expense and tax areas.

 

[Dtail]

Thanks Jerry, but for simplicity, I just put everything under Essential (no detailed breakdown) even though some may be discretionary. So as far as the tool is concerned, I don't have discretionary expenses but it still tells me my total expenses are higher but here is no breakdown. I budgeted $9000/month in essential expenses which works out to $108K per year but it's telling me that my total expenses are $123K

There is an assumption for Fed and State taxes.
As stated previously, you are better off inputting your expenses on a detailed line by line item. It is more work, but then easy to maintain.
You can then also input your own tax rates , which tend to be lower than the Fido calculation.
The calculator also uses a higher rate for medical expenses and treats mortgage expenses different from rental expenses.

 

[monte1022]

There is an assumption for Fed and State taxes.
As stated previously, you are better off inputting your expenses on a detailed line by line item. It is more work, but then easy to maintain.
You can then also input your own tax rates , which tend to be lower than the Fido calculation.
The calculator also uses a higher rate for medical expenses and treats mortgage expenses different from rental expenses.

Specifically for those who are pros at the Fidelity RIP, should I enter my expenses as pretax or after tax?

 

[Dtail]

Specifically for those who are pros at the Fidelity RIP, should I enter my expenses as pretax or after tax?

Effectively pre tax and then go to the tax section and enter your best guess of applicable federal and state tax rates. You can change the rates and see the different results.
Alternatively, you can enter the taxes as an expense line item and enter zero tax rates in the tax section. This is the way I do it, so there is no tax calculation from Fidelity.

 

[Ncc1701]

Effectively pre tax and then go to the tax section and enter your best guess of applicable federal and state tax rates. You can change the rates and see the different results.
Alternatively, you can enter the taxes as an expense line item and enter zero tax rates in the tax section. This is the way I do it, so there is no tax calculation from Fidelity.

Thanks for this idea. It effectively answered my question. Once I set taxes to zero, I got annual expense figures which are nearly the same as my annual expenditures ($108k).

So in essence the difference between the expenses you input and the total expenses is Taxes.

 

[augam]

Have use the Fido Calculator not familiar with RIP? however

 

[Doc Holiday]

Minor point - Fidelity uses 90% success rate in the "Significantly Below Market" calculations.

Longtime Fidelity user here.

I don’t think that Fidelity is using “success rate” in the same way Firecalc does. “Significantly below average”is just the 10th percentile of Monte Carlo outcomes of your initial investments over the time period/length of life you input, with as someone pointed out, a hit to the market when you retire/SORR. You could tweak your spending to make it “successful” at that sig below average figure if you want. This is their ultra conservative model. If you have money left, you are in great shape.

Another thing I learned from Fido on further questioning is that the 10th percentile is used after running your whole remaining lifespan. Initially, I thought “what are the odds that the market would be at 10th% outcome every year for forty years.” But no.

My only complaint about the program is taxes. I have 40 years left until my “end of plan”, and my tax rate will vary significantly over those years, esp with RMDs. You have to input a single figure (fed plus state) that is applied to, in my case, 40 years. So a modest amount of guesswork. And yes, it adds your taxes into your total withdrawals (expenses plus withdrawals) that you can see better in the chart version.
I think Fidelity does not want to get into tax advice/prediction/complex programming.

Overall, one of my favorite programs for budgeting and modeling various expenses at different time points. Worth the hours to dig in.

 

[Dtail]

Have use the Fido Calculator not familiar with RIP? however

RIP used to be the named Fidelity retirement calculator, so many users still refer to it by its prior name.
The current calculator is effectively the same calculator of a different name.

 

[Dtail]

Longtime Fidelity user here.

I don’t think that Fidelity is using “success rate” in the same way Firecalc does. “Significantly below average”is just the 10th percentile of Monte Carlo outcomes of your initial investments over the time period/length of life you input, with as someone pointed out, a hit to the market when you retire/SORR. You could tweak your spending to make it “successful” at that sig below average figure if you want. This is their ultra conservative model. If you have money left, you are in great shape.

Agree. Fidelity only gives a success rate up to 90%, while Firecalc goes to 100%. However the concept of a Monte Carlo simulator is more conservative at the tail ends, so probably close than a 10% stated difference in success rates.


Another thing I learned from Fido on further questioning is that the 10th percentile is used after running your whole remaining lifespan. Initially, I thought “what are the odds that the market would be at 10th% outcome every year for forty years.” But no.

Agree, this is a fault of the program and so thus a user is left on his/her own as to adjustments possibly needed along the way.

My only complaint about the program is taxes. I have 40 years left until my “end of plan”, and my tax rate will vary significantly over those years, esp with RMDs. You have to input a single figure (fed plus state) that is applied to, in my case, 40 years. So a modest amount of guesswork. And yes, it adds your taxes into your total withdrawals (expenses plus withdrawals) that you can see better in the chart version.
I think Fidelity does not want to get into tax advice/prediction/complex programming.

Agree and this why I calculate my own taxes and use that result as an expense input.

Overall, one of my favorite programs for budgeting and modeling various expenses at different time points. Worth the hours to dig in.

Agree. It does provide a different point of view to the historical sequencing of returns type retirement calculators.

 

[augam]

RIP used to be the named Fidelity retirement calculator, so many users still refer to it by its prior name.
The current calculator is effectively the same calculator of a different name.

Thanks.

 

[flyingaway]

It does not seem to give a score anymore?

 

[Dtail]

It does not seem to give a score anymore?

I just ran it and did receive a score. Nothing looked different.
Are you a Fidelity customer?

 

[Doc Holiday]

It only gives a score if you are not retired.

 

[38Chevy454]

It only gives a score if you are not retired.

You can sorta fake it out if you just put in a retirement date slightly after current date. Then it will provide a score, even if you are really retired, that is based on results of the simulations from current date forward.

 

[flyingaway]

It only gives a score if you are not retired.

OK. I got and can confirm this!

 

[flyingaway]

Longtime Fidelity user here.

I don’t think that Fidelity is using “success rate” in the same way Firecalc does. “Significantly below average”is just the 10th percentile of Monte Carlo outcomes of your initial investments over the time period/length of life you input, with as someone pointed out, a hit to the market when you retire/SORR. You could tweak your spending to make it “successful” at that sig below average figure if you want. This is their ultra conservative model. If you have money left, you are in great shape.

Another thing I learned from Fido on further questioning is that the 10th percentile is used after running your whole remaining lifespan. Initially, I thought “what are the odds that the market would be at 10th% outcome every year for forty years.” But no.

My only complaint about the program is taxes. I have 40 years left until my “end of plan”, and my tax rate will vary significantly over those years, esp with RMDs. You have to input a single figure (fed plus state) that is applied to, in my case, 40 years. So a modest amount of guesswork. And yes, it adds your taxes into your total withdrawals (expenses plus withdrawals) that you can see better in the chart version.
I think Fidelity does not want to get into tax advice/prediction/complex programming.

Overall, one of my favorite programs for budgeting and modeling various expenses at different time points. Worth the hours to dig in.

It seems that taxes are not directly shown in the table. In the withdrawal section, it shows the amount of the expenses without the taxes, with the comparable percentage.

It seems it started the simulation with a heavy cut in the portfolio.

 

[Dtail]

You can sorta fake it out if you just put in a retirement date slightly after current date. Then it will provide a score, even if you are really retired, that is based on results of the simulations from current date forward.

Yes that is what I do. Not really different than using Firecalc after retirement.

 

[Dtail]

It seems that taxes are not directly shown in the table. In the withdrawal section, it shows the amount of the expenses without the taxes, with the comparable percentage.

It seems it started the simulation with a heavy cut in the portfolio.

Yes, the first year the portfolio appears to be cut anywhere from 8 to 15% based on the years I have been running the program. It is not consistent as to the percentage cut.
This cut is effectively part of the more conservative simulations that the program uses, as part of the non historical loss year sequencing results.