How I use I-ORP, and who shouldn't

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DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Sun Sep 03, 2017 2:38 pm

How much to trust these results. It sounds too good to be true. I know I need to rerun it to fully comprehend all the strategies. It sounds like I'm going to leave larger estate than I had planned. Time to buy the Bugatti ?

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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker » Sun Sep 03, 2017 4:04 pm

DrGoogle2017 wrote:
Sun Sep 03, 2017 2:38 pm
How much to trust these results. It sounds too good to be true. I know I need to rerun it to fully comprehend all the strategies. It sounds like I'm going to leave larger estate than I had planned. Time to buy the Bugatti ?
I interpret results as the average, not the worst case. To me, i-ORP's main strength is taxes and Roth conversions.

DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Sun Sep 03, 2017 4:08 pm

munemaker wrote:
Sun Sep 03, 2017 4:04 pm
DrGoogle2017 wrote:
Sun Sep 03, 2017 2:38 pm
How much to trust these results. It sounds too good to be true. I know I need to rerun it to fully comprehend all the strategies. It sounds like I'm going to leave larger estate than I had planned. Time to buy the Bugatti ?
I interpret results as the average, not the worst case. To me, i-ORP's main strength is taxes and Roth conversions.
I must study it some more. So the number under the tax is the tax savings I assume. Because it adds to the total asset.

smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Sun Sep 03, 2017 4:12 pm

DrGoogle2017 wrote:
Sun Sep 03, 2017 2:38 pm
How much to trust these results. It sounds too good to be true. I know I need to rerun it to fully comprehend all the strategies. It sounds like I'm going to leave larger estate than I had planned. Time to buy the Bugatti ?
I like the IORP as well and use if for comparisons as well as Roth conversion strategies.
The results depend a lot on how much you trust your inputs. If you feed it some healthy returns for stocks and bonds and have a higher AA as well as a low inflation rate then you get some math that will make you smile.
Whether of not the future holds what your inputs state no one knows....

DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Sun Sep 03, 2017 4:19 pm

smitcat wrote:
Sun Sep 03, 2017 4:12 pm
DrGoogle2017 wrote:
Sun Sep 03, 2017 2:38 pm
How much to trust these results. It sounds too good to be true. I know I need to rerun it to fully comprehend all the strategies. It sounds like I'm going to leave larger estate than I had planned. Time to buy the Bugatti ?
I like the IORP as well and use if for comparisons as well as Roth conversion strategies.
The results depend a lot on how much you trust your inputs. If you feed it some healthy returns for stocks and bonds and have a higher AA as well as a low inflation rate then you get some math that will make you smile.
Whether of not the future holds what your inputs state no one knows....
I was being very conservative as always, my nature when I plan things, and hoping for the best. I put 7 % for IRA and 8% for Roth, 3% for after tax. I've been earning more, but I stick to the conservative side when I plan things. For bonds, I put 1 or less than 2%. Are these numbers too high? I do invest in 100% in stocks my Roth IRA. But only less than 50% in stocks in my regular IRA, and 20% in my after tax.

LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE » Sun Sep 03, 2017 4:49 pm

I was being very conservative as always, my nature when I plan things, and hoping for the best. I put 7 % for IRA and 8% for Roth, 3% for after tax. I've been earning more, but I stick to the conservative side when I plan things. For bonds, I put 1 or less than 2%. Are these numbers too high? I do invest in 100% in stocks my Roth IRA. But only less than 50% in stocks in my regular IRA, and 20% in my after tax.
Just for comparison, I use 6% for stocks and 3% for bonds/fixed income, with 2.5% inflation. I love your numbers, but the stock seems a bit high to me.
The mightiest Oak is just a nut who stayed the course.

curmudgeon
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Re: How I use I-ORP, and who shouldn't

Post by curmudgeon » Sun Sep 03, 2017 10:12 pm

DrGoogle2017 wrote:
Sun Sep 03, 2017 4:19 pm
smitcat wrote:
Sun Sep 03, 2017 4:12 pm
DrGoogle2017 wrote:
Sun Sep 03, 2017 2:38 pm
How much to trust these results. It sounds too good to be true. I know I need to rerun it to fully comprehend all the strategies. It sounds like I'm going to leave larger estate than I had planned. Time to buy the Bugatti ?
I like the IORP as well and use if for comparisons as well as Roth conversion strategies.
The results depend a lot on how much you trust your inputs. If you feed it some healthy returns for stocks and bonds and have a higher AA as well as a low inflation rate then you get some math that will make you smile.
Whether of not the future holds what your inputs state no one knows....
I was being very conservative as always, my nature when I plan things, and hoping for the best. I put 7 % for IRA and 8% for Roth, 3% for after tax. I've been earning more, but I stick to the conservative side when I plan things. For bonds, I put 1 or less than 2%. Are these numbers too high? I do invest in 100% in stocks my Roth IRA. But only less than 50% in stocks in my regular IRA, and 20% in my after tax.
You will create some odd results doing this. If you have a higher return in one type of account, i-orp will try to overweight that account. Probably not what you want. Note also that the default i-orp will assume perfectly smoothly growing markets, which makes the conversion optimization calculable, but is also unrealistic in the real world.

I view i-orp as one input for Roth conversion planning, but I never bet everything on a single tool.

DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Sun Sep 03, 2017 10:36 pm


You will create some odd results doing this. If you have a higher return in one type of account, i-orp will try to overweight that account. Probably not what you want. Note also that the default i-orp will assume perfectly smoothly growing markets, which makes the conversion optimization calculable, but is also unrealistic in the real world.

I view i-orp as one input for Roth conversion planning, but I never bet everything on a single tool.
That was my worry. It seems suspicious to have everything goes up a straight line every year by a fix percentage. Maybe I better dial back on my rate of return. Should be a lot less than 6%, the rate suggested by I-orp.

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TheTimeLord
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Re: How I use I-ORP, and who shouldn't

Post by TheTimeLord » Mon Sep 04, 2017 8:20 am

Which Retirement Spending Plan are people using? I think I am favoring the use of Age Banding, although Retirement Reality produces the most favorable results for me by a wide margin.

1) Constant Spending
2) Retirement Reality Spending
3) Changing Consumption
4) The Lifecycle of Spending
5) The Age Banding
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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TheTimeLord
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Re: How I use I-ORP, and who shouldn't

Post by TheTimeLord » Mon Sep 04, 2017 8:24 am

LeeMKE wrote:
Sun Sep 03, 2017 4:49 pm
I was being very conservative as always, my nature when I plan things, and hoping for the best. I put 7 % for IRA and 8% for Roth, 3% for after tax. I've been earning more, but I stick to the conservative side when I plan things. For bonds, I put 1 or less than 2%. Are these numbers too high? I do invest in 100% in stocks my Roth IRA. But only less than 50% in stocks in my regular IRA, and 20% in my after tax.
Just for comparison, I use 6% for stocks and 3% for bonds/fixed income, with 2.5% inflation. I love your numbers, but the stock seems a bit high to me.
I use 6% for Stocks, 2.5% for Fixed Income and 2.5% for Inflation.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker » Mon Sep 04, 2017 8:58 am

TheTimeLord wrote:
Mon Sep 04, 2017 8:20 am
Which Retirement Spending Plan are people using? I think I am favoring the use of Age Banding, although Retirement Reality produces the most favorable results for me by a wide margin.

1) Constant Spending
2) Retirement Reality Spending
3) Changing Consumption
4) The Lifecycle of Spending
5) The Age Banding
I am using 1) Constant Spending. Have not really investigated the other options.

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TheTimeLord
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Re: How I use I-ORP, and who shouldn't

Post by TheTimeLord » Mon Sep 04, 2017 9:22 am

munemaker wrote:
Mon Sep 04, 2017 8:58 am
TheTimeLord wrote:
Mon Sep 04, 2017 8:20 am
Which Retirement Spending Plan are people using? I think I am favoring the use of Age Banding, although Retirement Reality produces the most favorable results for me by a wide margin.

1) Constant Spending
2) Retirement Reality Spending
3) Changing Consumption
4) The Lifecycle of Spending
5) The Age Banding
I am using 1) Constant Spending. Have not really investigated the other options.
I get the appeal of the simplicity of Constant Spending but best I can tell research suggest that is not how we will spend our money in retirement (at least the research used to develop the other methods) plus I have myself and my spouse expiring quite a few years apart and see no reason why 1 person would need the same money as 2 people which I believe is what will be modeled under Constant Spending. On the plus side using my examples Constant Spending is be far the most conservative, so it would be hard to get into trouble using it.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

curmudgeon
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Re: How I use I-ORP, and who shouldn't

Post by curmudgeon » Mon Sep 04, 2017 10:36 am

DrGoogle2017 wrote:
Sun Sep 03, 2017 10:36 pm

You will create some odd results doing this. If you have a higher return in one type of account, i-orp will try to overweight that account. Probably not what you want. Note also that the default i-orp will assume perfectly smoothly growing markets, which makes the conversion optimization calculable, but is also unrealistic in the real world.

I view i-orp as one input for Roth conversion planning, but I never bet everything on a single tool.
That was my worry. It seems suspicious to have everything goes up a straight line every year by a fix percentage. Maybe I better dial back on my rate of return. Should be a lot less than 6%, the rate suggested by I-orp.
6% is not necessarily a bad aggregate number, but if you have a higher number for Roth, for example, the tool will suggest more conversion (and higher tax bill) than might be wise. I mostly use it for the Roth conversion guidance, and I use the same returns in all the account types; while my actual returns may differ, I like to separate that out from my conversion decisions.

DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Mon Sep 04, 2017 10:40 am

curmudgeon wrote:
Mon Sep 04, 2017 10:36 am
DrGoogle2017 wrote:
Sun Sep 03, 2017 10:36 pm

You will create some odd results doing this. If you have a higher return in one type of account, i-orp will try to overweight that account. Probably not what you want. Note also that the default i-orp will assume perfectly smoothly growing markets, which makes the conversion optimization calculable, but is also unrealistic in the real world.

I view i-orp as one input for Roth conversion planning, but I never bet everything on a single tool.
That was my worry. It seems suspicious to have everything goes up a straight line every year by a fix percentage. Maybe I better dial back on my rate of return. Should be a lot less than 6%, the rate suggested by I-orp.
6% is not necessarily a bad aggregate number, but if you have a higher number for Roth, for example, the tool will suggest more conversion (and higher tax bill) than might be wise. I mostly use it for the Roth conversion guidance, and I use the same returns in all the account types; while my actual returns may differ, I like to separate that out from my conversion decisions.
Good idea. I might try running I-orp with that idea again. I thought my Roth has higher return because of 100% in equities. Maybe I should try to see what are the results if they are all the same ROI.

DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Mon Sep 04, 2017 12:37 pm

So I ran a few scenarios this morning and I noticed a flaw, real flaw I think. I-orp assumes you get nothing from SS if your spouse dies before you get SS at age 70. But in real life, you get window benefits after age 60.
But it seems like I need to aggressively convert my IRA to Roth IRA is the bottom line. Huge income toward the end. But I ran 4-5 scenarios with increment lifespan for the oldest spouse every 5 year just to see if there is a difference. It seems like no difference. The tool splits out the same amount to convert. I also noticed a new error message that I didn't notice before, like the reason why the tool chokes. Maybe somebody fixed it.

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Peter Foley
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Re: How I use I-ORP, and who shouldn't

Post by Peter Foley » Mon Sep 04, 2017 1:42 pm

munemaker wrote:
freebeer wrote: ↑Fri Aug 18, 2017 9:26 pm
Peter Foley wrote: ↑Fri Aug 18, 2017 2:57 pm
munemaker wrote:
...converting $50K per year for two years provided a larger estate than converting $20K for five years. This is the effect of rate of return in the Roth account which I set to be higher than that of a tax deferred account. My assumption is that many people, myself included, primarily use equities in a Roth whereas the tax deferred account is a mix of stocks and bonds. ...

Just for the record, I did not write the above as stated. Peter Foley did. Personally I set the returns the same for traditional IRA, Roth IRA and taxable. That avoids the issue.
Top
Sorry for the mis-atribution munemaker, I think I messed up in the copy and past sequence and left out a sentence or two that came from one of your posts.

As to The TimeLord's inquiry regard which spending plan people are using . . .

For some (many?) who use i-orp, I would guess that the retirement spending plan they are using is not a significant factor. i-orp helps with tax planning and estate planning. Roth conversions can be a key component of such planning. This implies, for some, significant flexibility in spending.

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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker » Mon Sep 04, 2017 2:07 pm

DrGoogle2017 wrote:
Mon Sep 04, 2017 12:37 pm
...I noticed a flaw, real flaw I think. I-orp assumes you get nothing from SS if your spouse dies before you get SS at age 70. But in real life, you get window benefits after age 60.
Just plug in SS survivor's benefits at age __ (whatever you selected) and rerun it.

DrGoogle2017
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 » Mon Sep 04, 2017 2:10 pm

munemaker wrote:
Mon Sep 04, 2017 2:07 pm
DrGoogle2017 wrote:
Mon Sep 04, 2017 12:37 pm
...I noticed a flaw, real flaw I think. I-orp assumes you get nothing from SS if your spouse dies before you get SS at age 70. But in real life, you get window benefits after age 60.
Just plug in SS survivor's benefits at age __ (whatever you selected) and rerun it.
How? I started at 57. How do I know what my retirement account will be when I'm 66 or 67.

LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE » Mon Sep 04, 2017 3:33 pm

So I ran a few scenarios this morning and I noticed a flaw, real flaw I think. I-orp assumes you get nothing from SS if your spouse dies before you get SS at age 70. But in real life, you get window benefits after age 60.
But it seems like I need to aggressively convert my IRA to Roth IRA is the bottom line. Huge income toward the end. But I ran 4-5 scenarios with increment lifespan for the oldest spouse every 5 year just to see if there is a difference. It seems like no difference. The tool splits out the same amount to convert. I also noticed a new error message that I didn't notice before, like the reason why the tool chokes. Maybe somebody fixed it.
You can send your question to the author of I-ORP. Check the site for the address and include your model number so he can check your results and respond with help.
The mightiest Oak is just a nut who stayed the course.

LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE » Mon Sep 04, 2017 3:43 pm

Post Mon Sep 04, 2017 8:58 am

TheTimeLord wrote: ↑ Which Retirement Spending Plan are people using? I think I am favoring the use of Age Banding, although Retirement Reality produces the most favorable results for me by a wide margin.

1) Constant Spending
2) Retirement Reality Spending
3) Changing Consumption
4) The Lifecycle of Spending
5) The Age Banding
I am using 1) Constant Spending. Have not really investigated the other options.
Top
I ran all options and laid them out on a line to compare. I'll keep spending closer to the most conservative, but know I can be more aggressive in the early years if we want to spend a bit more. I compare Constant Spending with the results from McClung's book (Living Off Your Money) and expect to stay within those boundaries, and if we want to spend more, will look at the other strategies to tilt Spending to early years of retirement. The most aggressive strategies scare me a bit.
The mightiest Oak is just a nut who stayed the course.

orplanner
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Re: How I use I-ORP, and who shouldn't

Post by orplanner » Tue Sep 05, 2017 1:55 pm

DrGoogle2017 wrote:
Sat Sep 02, 2017 1:04 pm

Thank you for fixing it. But somehow it didn't work on my iPad.
So today, I ran I-ORP from my computer, interesting results. And sometime it depends on what I input the software choked. But I didn't see anything that I could input rising source of income at a certain age. I only saw a one time event for income. Did I miss something?
The repair to your iPad's ORP requires that you refresh (or reload) your Extended ORP and Essential ORP screens.

Could your rising source of income beginning at a certain age be modeled as a deferred annuity?

LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE » Wed Sep 06, 2017 8:27 am

I've edited the original post to add:
You've confirmed that I-ORP does NOT apply:
1) Your estate is likely to be over $5 million, making your case an estate planning case instead of a withdrawal optimization case.
2) You aren't trying to optimize retirement withdrawals.
3) Your retirement will take place after age 70.
4) You will continue adding to savings (more than just replenishing your emergency fund) after retirement.
The specifics of testing the limits of I-ORP by trying to answer questions it is not designed for, is examined in this thread:
viewtopic.php?f=10&t=227015
The mightiest Oak is just a nut who stayed the course.

jmk
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Re: How I use I-ORP, and who shouldn't

Post by jmk » Wed Nov 01, 2017 8:39 am

freebeer wrote:
Fri May 12, 2017 5:52 pm
chuckb84 wrote:...Since I retired at 61, if I postponed SS to age 70 to maximize total retirement spending, I'd draw down my 401k by 40% before I got there, OTOH, if I took SS at 62, the drawdown is no more than 10%. Postponing SS to 70 results in about 1% more total spending in retirement (from 61-95), but I didn't like that initial 40% drawdown...
Interesting that the difference in total spending between taking at 62 and 70 was only 1%. I would have thought that due to tax savings from minimizing RMDs later it would be a significantly better strategy to draw down the 401k rather than take SS earlier...
My i-orp run showed no difference in annual disposable income between ss at 67 and 70. Yet when I ran the I-orp Monte Carlo, there was a smaller income at 1 standard deviation between the former and latter. In other words, better odds of maintaining that average with later ss.

SGM
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Re: How I use I-ORP, and who shouldn't

Post by SGM » Wed Nov 01, 2017 9:26 am

I look at I-ORP occasionally. It recommended Roth conversions over an extended period prior to taking SS which I acted upon. I used James Lange's book The Roth Revolution as another guide for conversions. Earlier versions didn't seem to be correct regarding taxes. For delaying SS I used multiple free calculators. I discarded the idea of a break even point as I valued the insurance of delayed SS should at least one of us being long-lived.

I-ORP advises spending from taxable until depleted prior to spending from our Roth accounts. If I decrease the cost basis of taxable I-ORP will advise tapping the Roth accounts before taxable is depleted. I think if I play around with it enough there may be other inputs that will change the withdrawal method.

My next major decision will likely be when to purchase my first SPIA. I-ORP may be helpful in making the decision. I look at I-ORP as another tool to help me reflect upon what I consider to be important decisions.

smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Wed Nov 01, 2017 9:39 am

SGM wrote:
Wed Nov 01, 2017 9:26 am
I look at I-ORP occasionally. It recommended Roth conversions over an extended period prior to taking SS which I acted upon. I used James Lange's book The Roth Revolution as another guide for conversions. Earlier versions didn't seem to be correct regarding taxes. For delaying SS I used multiple free calculators. I discarded the idea of a break even point as I valued the insurance of delayed SS should at least one of us being long-lived.

I-ORP advises spending from taxable until depleted prior to spending from our Roth accounts. If I decrease the cost basis of taxable I-ORP will advise tapping the Roth accounts before taxable is depleted. I think if I play around with it enough there may be other inputs that will change the withdrawal method.

My next major decision will likely be when to purchase my first SPIA. I-ORP may be helpful in making the decision. I look at I-ORP as another tool to help me reflect upon what I consider to be important decisions.

I agree with using IORP for fast comparisons and guidelines as well as ideas on what to explore in greater details.
There are ways to 'make' IORP select spending of taxable first...
- set the taxable accounts for a lower % earnings than the Roth
- have a general lower balance in Tiras then other accounts
- have both spouses pass on at the same dates
I have found that the largest decisions with adding or not adding SPIA's has to do with taxes and flexibility.
When we have a preferred IORP run we utilizing the RPM spreadsheet/calculator to add greater details and direct comparisons for Roth conversions - the resultant printout is quite eye opening.
Then when we are happy with both the IORP and the RPM we check it back with live tax software over some sample years.

JBTX
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Re: How I use I-ORP, and who shouldn't

Post by JBTX » Wed Nov 01, 2017 9:41 am

When I ran I-orp for the first time a month or two ago, I was surprised that I got marginally better results retiring at 62 vs 70. The later I delayed retirement worse it got. It was particularly surprising since the retirement age parameter specifically says waiting until 70 tends to optimize your result.

It is entirely possible my result was due to user error, but I ran the scenarios side by side, and the only thing I changed was the social security retirement date (for both DW and I).

Anybody else encounter anything like that? I wondered if the result could be the result of a decent amount of money saved in traditional IRA' spitting off RMD's, (assume $1.5-$2 million at retirement, in today's dollars, give or take) plus the fact that both of us should end up receiving the maximum social security payout (or close to it) - and the result of that income, plus impact of income taxes on social security, drive up the marginal rate?

I'll probably try it again, and if I get the same result, save the scenario and ping the I-orb adminstrator.

LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE » Wed Nov 01, 2017 10:15 am

When I ran I-orp for the first time a month or two ago, I was surprised that I got marginally better results retiring at 62 vs 70.
Humm. We got this result BUT I am retired (no more contributions to retirement accounts) and that was our surprise that taking Social Security early for one of us was better than waiting. This was because it reduced the amount withdrawn from the portfolio by the SS payment. In your case, you'd continue making contributions (guessing) so that would not be the reason. Worth more fiddling around and asking James Walsh if you don't figure it out.
The mightiest Oak is just a nut who stayed the course.

smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Wed Nov 01, 2017 10:31 am

JBTX wrote:
Wed Nov 01, 2017 9:41 am
When I ran I-orp for the first time a month or two ago, I was surprised that I got marginally better results retiring at 62 vs 70. The later I delayed retirement worse it got. It was particularly surprising since the retirement age parameter specifically says waiting until 70 tends to optimize your result.

It is entirely possible my result was due to user error, but I ran the scenarios side by side, and the only thing I changed was the social security retirement date (for both DW and I).

Anybody else encounter anything like that? I wondered if the result could be the result of a decent amount of money saved in traditional IRA' spitting off RMD's, (assume $1.5-$2 million at retirement, in today's dollars, give or take) plus the fact that both of us should end up receiving the maximum social security payout (or close to it) - and the result of that income, plus impact of income taxes on social security, drive up the marginal rate?

I'll probably try it again, and if I get the same result, save the scenario and ping the I-orb adminstrator.


"When I ran I-orp for the first time a month or two ago, I was surprised that I got marginally better results retiring at 62 vs 70."

I would start to look by taking the printouts of each and comparing the schedules for "other sources of income".
I an guessing something will jump out at you on that page.

SpideyIndexer
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Re: How I use I-ORP, and who shouldn't

Post by SpideyIndexer » Thu Jul 05, 2018 9:09 pm

An old thread...but how does one get I-ORP to consider Roth conversions?

2pedals
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Re: How I use I-ORP, and who shouldn't

Post by 2pedals » Thu Jul 05, 2018 10:33 pm

SpideyIndexer wrote:
Thu Jul 05, 2018 9:09 pm
An old thread...but how does one get I-ORP to consider Roth conversions?
Use the extended version and select one of the options in IRA to IRA Roth conversions.

Image

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Re: How I use I-ORP, and who shouldn't

Post by SpideyIndexer » Fri Jul 06, 2018 2:12 am

Thanks. I just found that button a few hours ago!

When all is said and done, massive Roth conversions seemed to make little difference (within 1%). Both for the single run and for the Monte Carlo average and average minus 2 std deviations. This is for tax rates held constant.

smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Fri Jul 06, 2018 7:07 am

SpideyIndexer wrote:
Fri Jul 06, 2018 2:12 am
Thanks. I just found that button a few hours ago!

When all is said and done, massive Roth conversions seemed to make little difference (within 1%). Both for the single run and for the Monte Carlo average and average minus 2 std deviations. This is for tax rates held constant.
I am not sure why that is happening but did you happen to try a run where one spouse is deceased early on and see what that does to taxes and spendable income ?
I cannot imagine tax rates held constant over the long term for anyone retiring early or delaying SS or both.

Tdubs
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Re: How I use I-ORP, and who shouldn't

Post by Tdubs » Fri Jul 06, 2018 7:15 am

ORP tends to show only small advantages for conversions and other conventional wisdom (like waiting on SS till you are 70). I suppose it is reassuring that no matter what you path you choose, you can't screw it up to much.

smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Fri Jul 06, 2018 8:14 am

Tdubs wrote:
Fri Jul 06, 2018 7:15 am
ORP tends to show only small advantages for conversions and other conventional wisdom (like waiting on SS till you are 70). I suppose it is reassuring that no matter what you path you choose, you can't screw it up to much.

"ORP tends to show only small advantages for conversions and other conventional wisdom"

I do not find that to be true in our case. If you run one possible future outcome with IORP it is entirely possible that you could get an output like this. But vary the age of demise of one spouse / or earnings potentials / or inflation rate / or many other potential futures then the conversions become much more advantageous.

For greater details and perhaps a real eye opener try running the much more detailed RPM calculator/spreadsheet. It will take you a lot longer to populate the RPM but the results are much more detailed with graphic as well as tabulated results. Dependent upon your exact situation , your inputs and your future assumptions you can check many different potential outcomes.
Then we take the RPM outputs and check a few years of them utilzing tax software to make sure they are reasonably accurate - so far they have been near 100%. RPM yeilds a significant outcome for Roth conversions for us - of course the outputs will be different for everyone as the inputs will vary.
So in our case you can screw it up a bunch. Hope this helps

LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE » Fri Jul 06, 2018 5:18 pm

For us, the Roth Conversions make a huge difference. If your circumstance is such that it doesn’t matter much, great! You can move on to something else.

If you have sisters or brothers, do what you can to encourage them to try I-ORP. If it doesn’t matter much, great! But when it matters, it matters ALOT. We are moved from well into the 25% bracket,to safely in the 15% (now 12%) bracket. RPM is more detailed, and more difficult to use. I recommend I-ORP often, and leave RPM to the nerds.
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Tdubs
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Re: How I use I-ORP, and who shouldn't

Post by Tdubs » Fri Jul 06, 2018 6:36 pm

James Welch, who operates ORP, makes no grand claims about the advantages of conversions--1 percent added to annual income "in most situations," per his own publications.

Advantages for inheritance to be sure.

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Hayden
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Re: How I use I-ORP, and who shouldn't

Post by Hayden » Fri Jul 06, 2018 7:09 pm

I used ORP and really don't understand the results. I'm hoping one of you can explain this.

ORP recommends huge Roth conversions. But when I look at the projected annual disposable income, the number only improves by 1% when I change from no Roth conversion to unlimited conversions.

Then I ran the Monte Carlo, and became even more confused. The median and average results from the Monte Carlo simulation are much lower than the "annual disposable income" projection.

And, the numbers projected with No Roth conversions were BETTER than the numbers projected for unconstrained Roth conversions. All of the Monte Carlo numbers (median, average, 1st std Dev, 2nd std Dev, worst case) were higher with no Roth conversions than with ORP's unlimited conversions.

Edit:. I've run the Monte Carlo a few more times. The numbers move around a fair amount (I am not changing my inputs, just re-running the calculation). Now the median and average available for spending is higher with the Roth conversions. The 1st std Dev, 2nd std Dev, and worst case are all better with no Roth conversions.

Tdubs
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Re: How I use I-ORP, and who shouldn't

Post by Tdubs » Fri Jul 06, 2018 8:08 pm

You aren't doing anything wrong. What ORP tells you--as Welch does in his published work--1 percent is about all you get from conversions. But the numbers don't really get at the advantages of early conversions, freedom. After the conversions, you can withdraw at variable rates each year based on your needs without regard to tax concerns. If you have a big one-year expense, you aren't pulling it out of a pre-tax account at 24 percent marginal rate. If taxes go higher down the road, you are safe.

The Monte Carlo results should show a higher average than median result because there are some very high annual return scenarios that pull the average up above the median. So your results sound correct.

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Re: How I use I-ORP, and who shouldn't

Post by SpideyIndexer » Sat Jul 07, 2018 4:54 pm

RPM seems to make a stronger case for conversions than I-ORP for me.

I-ORP keeps the AA per account which is not ideal and can cause risk to vary a lot when balances shift in each account. This does not show up in a nominal return simulation; it would require Monte Carlo to see it.

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Re: How I use I-ORP, and who shouldn't

Post by LadyGeek » Sat Jul 07, 2018 4:57 pm

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).
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Hayden
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Re: How I use I-ORP, and who shouldn't

Post by Hayden » Sat Jul 07, 2018 5:43 pm

SpideyIndexer wrote:
Sat Jul 07, 2018 4:54 pm
RPM seems to make a stronger case for conversions than I-ORP for me.

I-ORP keeps the AA per account which is not ideal and can cause risk to vary a lot when balances shift in each account. This does not show up in a nominal return simulation; it would require Monte Carlo to see it.
How do you use RPM to evaluate Roth conversions?

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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Sat Jul 07, 2018 6:11 pm

Hayden wrote:
Sat Jul 07, 2018 5:43 pm
SpideyIndexer wrote:
Sat Jul 07, 2018 4:54 pm
RPM seems to make a stronger case for conversions than I-ORP for me.

I-ORP keeps the AA per account which is not ideal and can cause risk to vary a lot when balances shift in each account. This does not show up in a nominal return simulation; it would require Monte Carlo to see it.
How do you use RPM to evaluate Roth conversions?
You would need to download and follow the RPM instructions on how to fill in the inputs.
If you want to compare Roth conversions with no Roth conversions you fill in that sections and the RPM produces a table and chart that clearly shows the differences by year and totals.
And ...FWIW ...it's worth much more than 1% that someone mentioned above in our case. Again ….dependent upon your exact personal finances and where your accounts currently lie it can make a much larger difference or not - no way for someone to tell you what they got as a model for your case.

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Hayden
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Re: How I use I-ORP, and who shouldn't

Post by Hayden » Sun Jul 08, 2018 10:13 am

I used RPM and it gave me about a 2% difference, similar to the 1% difference I got with ORP.
But, I don't like using a deterministic calculator. I prefer the ORP Monte Carlo.
ORP tells me I am slightly ahead in the average case with Roth conversions, but in the 1st std dev, 2nd std dev, and worst case, I am better off with no Roth conversions. Makes sense.

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Re: How I use I-ORP, and who shouldn't

Post by dknightd » Sun Jul 08, 2018 10:19 am

I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable. The ability to quickly and easily change assumptions is very handy. I expect my actual spending pattern will be close to 2: changing consumption, but I also run constant spending (constant spending can look a lot like changing consumption if you choose a low inflation value).
I occasionally get strange numbers out of it, especially in Monte Carlo. When that happens I close the page, and start fresh. That seems to take care of it.
I also like his 3-peat plan. It resembles how I plan to take income during retirement. Basically a 3 year running average to help smooth out bumps.
My big concern about I-ORP is that James is considerably older than me. I would like to be able to run I-ORP every year during my retirement (along with a few other planners and estimators) so that I can keep track of how I'm doing.

I hope James can find somebody to take over hosting and maintaining I-ORP. It would be a shame to see all his hard work disappear.

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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Sun Jul 08, 2018 10:24 am

Hayden wrote:
Sun Jul 08, 2018 10:13 am
I used RPM and it gave me about a 2% difference, similar to the 1% difference I got with ORP.
But, I don't like using a deterministic calculator. I prefer the ORP Monte Carlo.
ORP tells me I am slightly ahead in the average case with Roth conversions, but in the 1st std dev, 2nd std dev, and worst case, I am better off with no Roth conversions. Makes sense.
Perhaps then with your inputs there is little difference.
Have you run a case where one spouse outlives the other by a number if years?
Varying potentil future events will giev yuo various outputs.
You could also vary account earnings, inflation, and individual returns by account type.

FWIW - sometimes there is little advantage with one set of inouts but a larger advantage with others - so then doing the conversions would mean no real disadvantage for one possible outcome and much better outcomes for the others.

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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Sun Jul 08, 2018 10:26 am

dknightd wrote:
Sun Jul 08, 2018 10:19 am
I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable. The ability to quickly and easily change assumptions is very handy. I expect my actual spending pattern will be close to 2: changing consumption, but I also run constant spending (constant spending can look a lot like changing consumption if you choose a low inflation value).
I occasionally get strange numbers out of it, especially in Monte Carlo. When that happens I close the page, and start fresh. That seems to take care of it.
I also like his 3-peat plan. It resembles how I plan to take income during retirement. Basically a 3 year running average to help smooth out bumps.
My big concern about I-ORP is that James is considerably older than me. I would like to be able to run I-ORP every year during my retirement (along with a few other planners and estimators) so that I can keep track of how I'm doing.

I hope James can find somebody to take over hosting and maintaining I-ORP. It would be a shame to see all his hard work disappear.
"I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable."
I like it as well but do not use the default values for our base case.

Tdubs
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Re: How I use I-ORP, and who shouldn't

Post by Tdubs » Sun Jul 08, 2018 11:06 am

The defaults are basically S&P long-term returns. So if you are using it to figure out conversions and withdrawals a few years out, it has to be adjusted.

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Re: How I use I-ORP, and who shouldn't

Post by dknightd » Sun Jul 08, 2018 11:10 am

smitcat wrote:
Sun Jul 08, 2018 10:26 am


"I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable."
I like it as well but do not use the default values for our base case.
I curious what you use. My base is 5% stock returns, 2 dividends, 3 fixed. Income inflates 2% spending 3.
Changing any of those numbers can make a big difference! Which is part of why the tool is so useful.
It quickly and easily exposes how we might be wrong. Looking at the 3-peat and Monte Carlo are also informative.
Last edited by dknightd on Sun Jul 08, 2018 11:22 am, edited 1 time in total.

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Re: How I use I-ORP, and who shouldn't

Post by smitcat » Sun Jul 08, 2018 11:16 am

dknightd wrote:
Sun Jul 08, 2018 11:10 am
smitcat wrote:
Sun Jul 08, 2018 10:26 am


"I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable."
I like it as well but do not use the default values for our base case.
I curious what you use. My base is 5% stock returns, 2 dividends, 3 fixed. Income inflates 2% spending 3.
Changing any of those numbers can make a big difference! Which is part of why the tool is so useful.
It is a personal choice driven by how conservative one wants to be. We run a whole bunch of variables and then put them in a 'chart' which shows us the extremes and midpoints of those variables and combinations.
FWIW - our base case is 5% stock / 3 fixed / 2.5% inflation.

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Hayden
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Re: How I use I-ORP, and who shouldn't

Post by Hayden » Sun Jul 08, 2018 11:21 am

smitcat wrote:
Sun Jul 08, 2018 11:16 am
dknightd wrote:
Sun Jul 08, 2018 11:10 am
smitcat wrote:
Sun Jul 08, 2018 10:26 am


"I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable."
I like it as well but do not use the default values for our base case.
I curious what you use. My base is 5% stock returns, 2 dividends, 3 fixed. Income inflates 2% spending 3.
Changing any of those numbers can make a big difference! Which is part of why the tool is so useful.
It is a personal choice driven by how conservative one wants to be. We run a whole bunch of variables and then put them in a 'chart' which shows us the extremes and midpoints of those variables and combinations.
FWIW - our base case is 5% stock / 3 fixed / 2.5% inflation.
Why not just use ORP's Monte Carlo calculation?

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