1) I am principally invested in tax deferred accounts (IRA and 401K) and had done some IRA to ROTH conversions, but wanted to know if more would optimize my taxes during retirement.
2) My estate is not over $5 million, so no estate tax consideration is needed.
3) Optimizing our income is our goal. We are not optimizing to leave an estate.
4) For us, postponing Social Security needs to be balanced against portfolio withdrawals to cover any period we delay Social Security.
If you have 3 or 4 of these same parameters, I-ORP may be very helpful. If you have just two, this tool might help, but might mislead. If you have only one, I-ORP is unlikely to be helpful IMHO.
Social Security — I had tried a few other tools, but was uncertain because the various tools gave different results. For us, the question was whether to take Social Security or dip into savings for early retirement. Most tools ignored the choice between early social security or drawing down from savings while waiting for social security payments. I-ORP shows that we are on the cusp, so that’s why slight variations in the formulas of different tools would show different results.
IRA to ROTH conversions — I discovered “The Hump” 7 years ago when it showed up on my Fidelity Retirement Income Planner. One of my Fidelity reps told me to use these last few years to convert IRA to ROTH because we were destined to be in a higher bracket in retirement. I made conversions I thought would erase that hump. But once I did that, I wanted to confirm I'd done enough, and see whether there was any benefit to converting more.
I-ORP gave me much better specifics as to how much more to convert and the net effect was easy to see because our spendable cash changed, with and without more conversions.
Withdrawal Strategies — I suspected the usual default of most of the planners was not optimum for us. Most planners are static in emptying first taxable accounts, followed by 401K and IRA, and leaving ROTH accounts to the end of plan. This is the best financial planning, but is not the optimum strategy for human beings:
A) If you die before the end of plan, ROTH may not be the best asset to leave behind. And dying before end of plan is the goal.
B) ROTH can be used to smooth out tax peaks, but only if you set things up correctly years in advance and spend just enough from ROTH to float your tax bracket down a notch, but not too much.
The guidance as to how much to take from each type of account is key to lowering our tax bracket throughout retirement. I-ORP did a great job of optimizing which accounts, and how much to take each year.
So, the last 3 years I’ve pulled an I-ORP report to track how I’m doing. Along the way, the author of I-ORP is also improving and enhancing his tool.
Spending Strategies — This year, I discovered a new option: different spending strategies. The results were intriguing, so I read more about each on the Boglehead Wiki, as well as the White Paper on the I-ORP site. In my case, these talk about an issue I am thinking about, spending too little early, when you are younger and able to travel, and ending up with too much money leftover at end of plan. Right now, these strategies are just thinking points for us. I'm finishing up McClung's Living Off Your Money and have more thinking to do about which strategy we will use. But having a ready calculation for a variety of strategies is very helpful for my deliberations.
Here's the link to the long form I used: https://i-orp.com/ORPparms.html
These are results from a Boglehead who worked with the I-ORP developer to confirm I-ORP does not solve for every circumstance.viewtopic.php?f=10&t=227015I-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.