Maxifi planner

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mhalley
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Maxifi planner

Post by mhalley » Thu Jul 20, 2017 2:31 pm

I have an unhealthy relationship with planning software. I play around with fire sim, fidelity tools, esplanner, I-orp etc. I see the folks from esplanner have a new tool called maxifi. It incorporates a lot of the tools from esplanner, plus ss advice (maybe using Koltlikoff maximize my social security tools). I guess it is the next generation of esplanner, adding some features and moving from desktop to online. Here are its features compared to esplanner

http://www.economicsecurityplanning.com ... comparison
Anyone tried this new planner? I got $99 bucks and an itch that I probably shouldn't scratch.

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David Jay
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Re: Maxifi planner

Post by David Jay » Thu Jul 20, 2017 6:59 pm

$99 is a cheap itch.

I just purchased a 32 foot 5th wheel trailer...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

bzargarcia
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Re: Maxifi planner

Post by bzargarcia » Thu Jul 20, 2017 7:50 pm

Thanks for posting. I was just talking to someone today about moving assets to Betterment because I am a fan of their planning tools.
Bart Garcia

GLM
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Re: Maxifi planner

Post by GLM » Thu Aug 31, 2017 4:12 pm

Finally registered as I may have something helpful to add.

I too like financial planning software a bit too much . I have used ESPLanner on and off for several years . I have the monticarlo version and found it tedious to enter my investments , never really sure if I had my mostly vanguard investments entered just as I should . The proprietary funds that ESPlanner has built in ( and would make it easy to use) are not for me.

I was hoping Maxifi would make investment entry easier or at least let me enter all my exact funds ( kind of like Financial engines).

I have only had the software for three days and I am still playing with it, learning the details. So far it feels like ESPLanner lite. You don't enter your portfolio just a return assumption . It is definitely easier to set up then ESPLanner but then it feels like you get less details out as well. I still have to play year by year to try and maximize Roth conversions. I can't ( so far at least ) see my taxable income or tax bracket for a given year. I also can't see ( so far ? ) when the maximized plan takes withdrawals out of my retirement funds in the future how much is IRA vs Roth in any given year .

On the first run having it " maximize " my discretionary income it annuitizatized everything . Of course with an lifespan of 100 that would give us the most disposable income but that is not how I would use an annuity. I would want it to give me an adequate worst case income stream. You can turn off the annuity feature or put an annuity in if you like .

Still old school enough not to really like the cloud for my info too. Although it only has account type totals - ie so much in IRA, Roth or regular funds. Wish I liked it more -as ESPLanner will be phased out . Hopefully more time with the program will reveal more advantages.

Dottie57
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Re: Maxifi planner

Post by Dottie57 » Thu Aug 31, 2017 4:40 pm

GLM wrote:
Thu Aug 31, 2017 4:12 pm
Finally registered as I may have something helpful to add.

I too like financial planning software a bit too much . I have used ESPLanner on and off for several years . I have the monticarlo version and found it tedious to enter my investments , never really sure if I had my mostly vanguard investments entered just as I should . The proprietary funds that ESPlanner has built in ( and would make it easy to use) are not for me.

I was hoping Maxifi would make investment entry easier or at least let me enter all my exact funds ( kind of like Financial engines).

I have only had the software for three days and I am still playing with it, learning the details. So far it feels like ESPLanner lite. You don't enter your portfolio just a return assumption . It is definitely easier to set up then ESPLanner but then it feels like you get less details out as well. I still have to play year by year to try and maximize Roth conversions. I can't ( so far at least ) see my taxable income or tax bracket for a given year. I also can't see ( so far ? ) when the maximized plan takes withdrawals out of my retirement funds in the future how much is IRA vs Roth in any given year .

On the first run having it " maximize " my discretionary income it annuitizatized everything . Of course with an lifespan of 100 that would give us the most disposable income but that is not how I would use an annuity. I would want it to give me an adequate worst case income stream. You can turn off the annuity feature or put an annuity in if you like .

Still old school enough not to really like the cloud for my info too. Although it only has account type totals - ie so much in IRA, Roth or regular funds. Wish I liked it more -as ESPLanner will be phased out . Hopefully more time with the program will reveal more advantages.

How is it with comparisone to firecalc and i-orp?

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Re: Maxifi planner

Post by GLM » Thu Aug 31, 2017 5:07 pm

Its been awhile since I ran either of them .

If memory serves right it is more detailed but then it is not free. Maxifi does better at helping you choose when to take social security which can be tricky if you have two qualified earners. ( We do not ). I am also hoping that it handles taxes with more precision as it asks for your State and is updated with tax law changes.

It reads out nicely with a PDF report or if you prefer an excel file. ( It works with my open office software as well )

It does not do montecarlo or chances of success type analysis. It is more geared toward trying to smooth and maximise consumption.

jaberwok
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Re: Maxifi planner

Post by jaberwok » Mon Dec 18, 2017 7:21 pm

An addition to this. I also had been an intermittent user of ESPlanner since its first introduction and have also used nearly all the optimizing social security software programs. I bought Maxifi several months ago and I think it provides some interesting ways of undertaking "what if" scenarios. As the previous poster mentions it does suggest purchase of an annuity and even short term life insurance in some situations which can be surprising. It is certainly very dependent on your assumptions about life expectancy , taxes and required legacy but I think this faithfully reflects the significance of these variables. It does allow you to input some sorts of assets (like longevity insurance aka deferred annuities) which are not always considered in less sophisticated software. Overall I think Maxifi is one of the first generation of personal software that tries to optimize a number of different income sources (including Social Security) as well as asset release (IRA, Roth, Pension etc) and is well worth considering. I think it likely that the sorts of software used by professional advisors will rapidly become available to individual investors and will be very useful and I think MaxiFi is an early example of this. Recommended

Goldenrule
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Re: Maxifi planner

Post by Goldenrule » Sun May 05, 2019 8:23 am

Jaberwok, are you still using Maxifi Planner software from ESP? If yes, then I would be very interested in your feedback regarding your experience(s) with the software. I like the philosophy of "fixed & discretionary" spending since traditional budgeting methodologies are too limiting and rigid. Any comments would be appreciated

afan
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Re: Maxifi planner

Post by afan » Sun May 05, 2019 8:59 am

I have been using Maxifi planner but I am close to giving up. As I worked through some strange results and communicated with customer support, I discovered that it has some extraordinary assumptions hard wired. These make the projections essentially worthless.

The example I am chasing now:

You input a portfolio size and indicate the value of unrealized capital gains. The program then plans to realize every penny of unrealized gains during your life expectancy. It will proceed to pull out a large share of such gains every year, even if you have indicated no need for any of these funds. Thus, it generate massive tax bills for no purpose.

As I worked through this with customer support, they cheerfully "explained" that tax laws required realization of capital gains every year and all during life. Thus, they said, the program would divide these up annually and spend down the capital assets.

When I pointed out that this was exactly wrong and there was no requirement to realize gains at all and that one could leave all gains unrealized at death and heirs would get a stepped up basis, I got to a more knowledgeable rep.

This person acknowledged that the behavior of Maxifi was not driven by any tax mandates. But also told me that there was no way to make it stop doing this. At first he suggested leaving out of the data any gains that I did not plan to spend during life. Of course, this would make all projections useless. It also would have made what if scenarios of lower returns and needing some of that money wildly inaccurate, since the funds would not be there.

I discovered that I could reduce the absurdly high spending it projected by increasing the size of the planned bequests. But even then, it kept depleting savings and paying taxes on this irrational behavior. I have not figured out where the money left after paying capital gains taxes goes. It does NOT accumulate in networth.

If you indicate zero unrealized gains, then it still draws down the assets, just does not pay taxes on them. It also continues to pull out and pay taxes on future capital gains every year.

Right now I have entered a large enough bequest to control spending down to a figure close to our current actual spending and told the program that almost all the money is in muni bonds. This ended its insistence on pulling out capital. However, it by necessity gets taxes wrong. The program continues to assume that future returns from any capital gains will be realized every year.

If I say that all current and future investments are in munis, then it gets the tax behavior correct at the expense of having a portfolio whose behavior is nothing like mine. There will be no unrealized gains in the future.

Customer support has variously said that they planned a change in this crazy cap gains behavior "in a few weeks" or "maybe sometime in the future." Until then, if your plans include having any unrealized gains at death, the program will not accept that. It will over tax and spend this money no matter what.

In summary, it seems the program started out with a simplifying assumption of realizing all capital gains during life due to a fundamental misunderstanding of the tax laws. Once they realized what they had done, it seems too complicated for them to fix.

If you expect to spend your last penny on your day of death and you plan to realize and spend all capital gains each year then this particular issue will be OK. If you are not morally bound to behave this foolishly, then the program is of no use.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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TomatoTomahto
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Re: Maxifi planner

Post by TomatoTomahto » Sun May 05, 2019 9:24 am

Afan, I ran into that same problem, and I approximate a solution by a combination of bequest and unlikely late death for spouse and me. We’ll die earlier, and the heirs will benefit.

I found the software useful for convincing myself to change DW’s 401k contributions to Roth. It was useless, however, for convincing her to retire :oops:
Okay, I get it; I won't be political or controversial. The Earth is flat.

jaberwok
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Re: Maxifi planner

Post by jaberwok » Sun May 05, 2019 1:26 pm

Goldenrule wrote:
Sun May 05, 2019 8:23 am
Jaberwok, are you still using Maxifi Planner software from ESP? If yes, then I would be very interested in your feedback regarding your experience(s) with the software. I like the philosophy of "fixed & discretionary" spending since traditional budgeting methodologies are too limiting and rigid. Any comments would be appreciated
Goldenrule. Thanks for this question which comes at a pertinent time as my subscription has just run out and I was deciding whether to renew!
During the last year I ran a series of "what if" scenarios with Maxifi and diligently printed out the results for comparison (as the results can extend to about 72 pages at a time you may want to check your both sides option is on). I am now in my 70th year so much of my retirement planning is essentially into the outcome phase.
Maxifi (like ESP) certainly did a useful job with showing financially optimal SS security deferral strategies and, equally usefully, the costs/benefits/risks of not following these. I have a (not unusual) collection of retirement assets (DB pensions, DC IRA funds, DC Rothed funds, TIAA-CREF, TSP) and Maxifi can incorporate these in its data sets. However for some of them (like TSP) it of course may not know the full options available (like annuities, graduated run down etc) - this is not surprising as TSP has been changing its rules with new ones to be produced this September. Worse is that we also have a couple of deferred annuities which would come in at age 80 or 85 (Longevity Insurance LI)

So the trouble is that as some of Maxifi's optimization strategies are very dependent on the exact structure of your assets (as well as your particular desires to leave particular amounts of legacy etc - see subsequent postings on this list) , it can suddenly switch between recommended optimal strategies. This can be somewhat disconcerting - at one point it suggested purchasing a fixed annuity for my spouse for the years 72-78 or similar just to reduce some sort of risk associated with smoothing or not smoothing our income over our remaining life span (not sure if you could get this sort of annuity, how much it would cost etc). In fact your decisions as to how long to smooth retirement income are critical to the program input. I also had recommendations to selectively reduce my ROTH holdings first to zero and then to move to those of my partner (and wonderful wife) which might be optimal but might also have strange effects if you have to report own assets (versus joint) in some scenarios. Also some of the optimal solutions delivered very substantial increases in assets and income in our 80s (see note on LI above but note that these were supposed to provide a backstop allowing asset run down earlier).
BUT nearly all these concerns really reflect exactly the issues where both the client (me or you) and their financial advisors (human or software) have to make some decision which is difficult to optimize. For example I am wondering whether to set up long term funds for grandchildren - but if anyone can predict whether a sprightly 6 year old at present will be using grandpa's funds for wild parties or worse at 21 let me know! Similarly for our needs for large funds for long term care in our 80s.
So all in all I think Maxifi is well worth purchasing for at least a year (I subscribed for about three) , running quite a few scenarios and then thinking about the conclusions. It is miles less expensive than a 1% charge on assets over time from a financial advisor who only produces a single pie chart a year and it does not encourage you to invest in real estate in swamp land . I continue to think that this sort of program is the beginning of a revolution in financial support but "Dad it can only do so much" ( to echo my daughter's comment as to whether my wearing black T shirts like S Jobs might make me look younger!).

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Horton
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Re: Maxifi planner

Post by Horton » Sun May 05, 2019 3:18 pm

I have recently started playing around with Maxifi. I'm still in the middle of the accumulation phase so I'm mainly focused on how much to spend/save, how to invest, and when I might be able to retire. While I'm not familiar with all the algorithims running in the background, I was pleased to see that the results generally align to the spreadsheet I have built. Maxifi confirmed my main conclusions - for my specified target retirement date, I can spend a bit more (save less) now and take less risk.

I was hoping that this tool would provide a more user friendly interface and output than my spreadsheet, so that I could share the results with my wife and possibly even teach her how to use it. Alas, while the input process is very user friendly, it took me a bit to understand the fixed and discretionary spending results and various other outputs. I have a feeling my wife isn't going to be all that interested.

The Monte Carlo functionality is good, but I must confess that I don't care at all for the "per-adult living standard." I immediately click over to the "Other Variables" and then toggle on various metrics (spending, net worth, etc.) to review the results.

All in all, I still think it's a really good tool if you like to dig into the details on this stuff, but it's probably not a tool I would recommend to the random friend or family member that asks for help.
"You must know that there is nothing higher and stronger and more wholesome and good for life in the future than some good memory, especially a memory of childhood, of home." - Dostoyevsky

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TomatoTomahto
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Re: Maxifi planner

Post by TomatoTomahto » Sun May 05, 2019 3:22 pm

That’s funny, the first think I look at is “per-adult living standard." That’s what makes horse races.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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TimeRunner
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Re: Maxifi planner

Post by TimeRunner » Sun May 05, 2019 3:56 pm

TomatoTomahto wrote:
Sun May 05, 2019 3:22 pm
That’s funny, the first think I look at is “per-adult living standard." That’s what makes horse races.
Yes, that's the number we're trying to optimize. It's not a budget planning tool at all, it's about optimizing discretionary income and smoothing it over remaining lifetime(s). If one doesn't spend that year's proposed max discretionary spending (as most Bogleheads would have extreme difficulty doing), one simply provides new account balances the following year and the program would recompute a likely higher discretionary income over ones' remaining lifetimes. It's not a budget plan one has to follow, it's more like a best case spending scenario envelope that one would stay within.

This isn't to say I don't have things I don't like about it. One big one is the inability to start calculations in a future year. That's handy as one gets further into 2019 for example, and wants to model 2020 and beyond using estimated 12/31/2019 balances for various retirement and savings accounts. That was available in the old ESPlanner and has not yet made it over to Maxifi.
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Re: Maxifi planner

Post by afan » Sun May 05, 2019 6:38 pm

I had hoped to use it to plan things like Roth conversions, social security optimization and so forth. But their sloppiness with taxes makes it hard for me to trust its answers. So far, I know that the way it treats capital gains is completely divorced from reality. But I had to dig through multiple rounds with customer service to find that out.

It also assumes one will start RMDs at age 70.5, even if still working. I had more rounds with customer service, more incorrect claims that the tax laws required this, before finally getting someone who knew about the while working exception. But the answer, as for capital gains, was "the law may not require this, but Maxifi pretends it does. You cannot change it."

Since both Roth and Social Security optimization depend exquisitely on details of rules and tax laws, I don't trust Maxifi to get these right.

I have not even tried to get the details on how it does it Social Security optimization. Does anyone know whether it calculates the after tax value of each distribution, taking into account the amount of benefits that are taxable and the tax rates one would face while working and after retirement? Does it compute net present value based on those cash flow? Or does it ignore all of this and simply tell you how to get the largest nominal payments from SS?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by midareff » Sun May 05, 2019 6:52 pm

David Jay wrote:
Thu Jul 20, 2017 6:59 pm
$99 is a cheap itch.

I just purchased a 32 foot 5th wheel trailer...
which sounds like an expensive hitch... if you like things that rhyme.

jaberwok
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Re: Maxifi planner

Post by jaberwok » Mon May 06, 2019 5:20 am

afan wrote:
Sun May 05, 2019 6:38 pm
I had hoped to use it to plan things like Roth conversions, social security optimization and so forth. But their sloppiness with taxes makes it hard for me to trust its answers. So far, I know that the way it treats capital gains is completely divorced from reality. But I had to dig through multiple rounds with customer service to find that out.

It also assumes one will start RMDs at age 70.5, even if still working. I had more rounds with customer service, more incorrect claims that the tax laws required this, before finally getting someone who knew about the while working exception. But the answer, as for capital gains, was "the law may not require this, but Maxifi pretends it does. You cannot change it."

Since both Roth and Social Security optimization depend exquisitely on details of rules and tax laws, I don't trust Maxifi to get these right.

I have not even tried to get the details on how it does it Social Security optimization. Does anyone know whether it calculates the after tax value of each distribution, taking into account the amount of benefits that are taxable and the tax rates one would face while working and after retirement? Does it compute net present value based on those cash flow? Or does it ignore all of this and simply tell you how to get the largest nominal payments from SS?
Afan, I think your examples of problems with MaxiFi are very helpful and insightful, thanks. However I think Maxifi is closer to a surgical saw than a scalpel - both have their uses and it can certainly be a mistake to use one when the other is called for. I doubt if we will be able to get an instrument that combines both functions in the near future. I certainly have not encountered a financial advisor who has as thoughtful a grasp on the details as you have so maybe Maxifi is not doing so badly comparatively! For many people (possibly not so many who are reading this column) I think Maxifi offers a potential starting point on a financially literate approach to retirement planning. At my level looking at Maxifi results combined with reading say Anspach's Book on planning your retirement destiny has seemed helpful and reassuring. Thanks again.

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Re: Maxifi planner

Post by afan » Mon May 06, 2019 8:57 am

You could be right. I am just hesitant to trust any of its results due to the odd, and sometimes wholly unsupported assumptions it makes.

For example, Maxifi gives different suggestions for "optimal" Social Security claiming than does Open Social Security. OSS is explicit about what it is doing. It gets full points for discounting future benefits by the actuarial likelihood of receiving them. Full points for stating the discount rate used, providing a rationale for why this rate was chosen and giving the user the option of changing it. OSS loses points because it does not discount SS cash flows by the tax rates that will apply while working and after retirement. It need not calculate these, but if the user could input them then OSS would do exactly what one would want.

Maxifi leaves question marks for all of this. It seems not to make any adjustment for likelihood of receiving benefits, just goes with what the user enters for life expectancy. Oversimplified but at least clear. How it handles taxes is anyone's guess. Maybe it gets the rest of the calculation right. Maybe it has used some oversimplified and wrong assumptions that do not follow the laws and rules- as it does for capital gains or RMDs.

Without knowing the answer, I have no idea how to interpret the results.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by Horton » Wed May 08, 2019 9:40 pm

TomatoTomahto wrote:
Sun May 05, 2019 3:22 pm
That’s funny, the first think I look at is “per-adult living standard." That’s what makes horse races.
I confess that the more I use the tool, the more that I find myself looking at per-adult living standard. Maybe I just needed a kick in the pants? :P

How does Maxifi take into account kids after age 19 (if at all)? Does it remove them from the household, thus removing them from the discretionary spending? Yes, I won't need to feed, clothe, and shelter them every day, but I probably will need to visit them, buy them presents, take them out to dinner, etc. Some things (e.g., support for a wedding or a deposit on a home) are probably best modeled as known fixed expenses, but any idea how to model some level of basic support?
"You must know that there is nothing higher and stronger and more wholesome and good for life in the future than some good memory, especially a memory of childhood, of home." - Dostoyevsky

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Re: Maxifi planner

Post by jaberwok » Thu May 09, 2019 3:09 am

Horton, not sure of how to model later child expenses as they are luckily into independence zone. However chance for me to correct a mis-statement I made in a previous post - the surprising suggestion that MaxiFi made to me on one calculation was to buy life insurance for a five year period 72-77 not an annuity. Just to support my general theme that I think MaxiFi is a genuinely (very) useful tool as an aid to thought and planning but (of course) not a comprehensive and dogmatic solution to every situation.

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Re: Maxifi planner

Post by afan » Thu May 09, 2019 1:23 pm

Regarding Social Security maximization: I could not find this documented anywhere but according to customer service, they apply taxes due to the taxable portion of Social Security paymenta, based on what you give it for income each year. They discount these cash flows to reflect taxes and use the present value of those cash flows to calculate the maximization strategy. That means they automatically adjust for changes in your tax bracket that may occur when you stop working.

I would be more comfortable if I could find this officially documented but that is what I was told. If it is true, then the strategies should truly be optimal given the age of death you pick.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by Horton » Sat May 11, 2019 6:59 am

"You must know that there is nothing higher and stronger and more wholesome and good for life in the future than some good memory, especially a memory of childhood, of home." - Dostoyevsky

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Re: Maxifi planner

Post by jaberwok » Sat May 11, 2019 7:29 am

Thanks for the review leads. Insightful.

afan
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Re: Maxifi planner

Post by afan » Sat May 11, 2019 6:12 pm

Horton wrote:
Wed May 08, 2019 9:40 pm

How does Maxifi take into account kids after age 19 (if at all)? Does it remove them from the household, thus removing them from the discretionary spending? Yes, I won't need to feed, clothe, and shelter them every day, but I probably will need to visit them, buy them presents, take them out to dinner, etc. Some things (e.g., support for a wedding or a deposit on a home) are probably best modeled as known fixed expenses, but any idea how to model some level of basic support?
A brute force way would be to enter annual costs for the children as "special expenses" and have those end when the kids are on their own. You would have to estimate how much you spend on kids above the costs for the parents.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by spammagnet » Sat May 11, 2019 10:35 pm

TomatoTomahto wrote:
Sun May 05, 2019 3:22 pm
That’s funny, the first think I look at is “per-adult living standard." That’s what makes horse races.
The first thing I look at is "regular savings".

We have little in the way of taxable assets and have projected larger expenditures in the early years of retirement since I'm deferring SS to 70. We also plan to travel more then. If I don't schedule sufficient extra withdrawals, my regular asset balance hits 0. When that happens, it breaks the smooth living standard.

If we had lots of taxable investments, that wouldn't happen. Since we don't, I have to play around with extra withdrawals until regular assets are non-zero in all years. At that point the living standard smooths out. I could also permit borrowing but I have no plans to borrow money to fund my standard of living in retirement.

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Re: Maxifi planner

Post by bobcat2 » Sun May 12, 2019 12:12 pm

What I like about Maxifi, or ESPlanner for that matter, is that you know explicitly what they are trying to optimize – your spending over the rest of your life. With that as the goal, they attempt to smooth out that spending, as much as possible, over your life.

For people several years from the targeted retirement year Maxifi focuses on your most important input – your estimated annual earned incomes from now to retirement, i.e. your remaining human capital. That, as well as your estimated Social Security benefits, your housing, and, lastly in most cases, your portfolio determine how much you can spend over your lifetime.

I don’t know what many of the other financial planning apps are trying to optimize, since many ignore pre-retirement income and have the planner input the amounts annually saved. But asking someone to estimate how much to save every year without first carefully making income projections and then calculating an optimal annual spending path is a Herculean task that Nobel prize winners in financial economics cannot solve. In other words the heavy lifting is being done by the planners input projections, not the planning software.

The simple case of a single person without borrowing constraints inputting earned income pre-retirement, portfolio size, and Social Security benefits in retirement can be solved in a spreadsheet without planning software. Simple divide the sum of your remaining human capital, portfolio value, and present value of your Social Security benefits by the number of years of your estimated remaining life and voila, in your spreadsheet you have smoothed spending and thus saving pre-retirement and spending and dissaving post-retirement.

But once we add when to take Social Security, taxes, housing, and insurance into the mix things get complicated. Once we add spouse, children, and contingent plans for the surviving spouse into the mix things get very complicated in a spreadsheet. And if there are annual borrowing constraints, the spreadsheet trial and error go seek method simply breaks down. There are simply too many paths to consider and a best case scenario is that one pass will take no more than several days to solve.

With Kotlikff’s life-cycle optimizers Maxifi and ESPlanner using dynamic programming instead of trial and error methods, such problems can be solved in a few seconds - not days or weeks. But getting the planner to focus on the important inputs, earned income, Social Security benefits, when to retire and not on - 'Should I put the remaining 15% of my portfolio into REITS or emerging markets?' is IMO a great strength of Maxifi and a near fatal weakness of most other financial planning programs.

BobK
Last edited by bobcat2 on Sun May 12, 2019 12:37 pm, edited 2 times in total.
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: Maxifi planner

Post by afan » Sun May 12, 2019 12:32 pm

I agree with all of that. But if the planner has me realizing and paying taxes on large amounts of capital gains that I don't need for current spending, then it gets wrong all numbers that are based on that bad tax planning.

I can make actual capital gains realized look more like reality. But only by ruining it's ability to do what if planning for circumstances under which I might need to tap those gains.

Optimizing spending over my life is not the goal. I realize that the world does not end at my death and that there are people I care about who will survive me. So I plan for them.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by bobcat2 » Sun May 12, 2019 12:42 pm

afan wrote:
Sun May 12, 2019 12:32 pm
I agree with all of that. But if the planner has me realizing and paying taxes on large amounts of capital gains that I don't need for current spending, then it gets wrong all numbers that are based on that bad tax planning.

I can make actual capital gains realized look more like reality. But only by ruining it's ability to do what if planning for circumstances under which I might need to tap those gains.

Optimizing spending over my life is not the goal. I realize that the world does not end at my death and that there are people I care about who will survive me. So I plan for them.
Then plan for them by leaving a bequest value, most likely a minimum bequest value. Also set up a reserve fund for special expenditures both planned, such as a boat, and unplanned, such as major medical out-of-pocket expenditures.

Optimizing spending over your life is the goal, subject to the constraint that you want to leave at least X dollars as a bequest to others. In the base case of a single person with no annual borrowing constraints this can easily be done even in a spreadsheet. Simple subtract from lifetime income the value of the bequest.

One caveat here with regard to me and Maxifi. I have used ESPlanner for nearly 20 years. I have looked at Maxifi since December for maybe two hours. I assume that sooner, or later, everything that is currently in ESPlanner will be ported over to Maxifi and over time new features will be added to Maxifi.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: Maxifi planner

Post by afan » Sun May 12, 2019 2:21 pm

I have set up a bequest value. Since Maxifi insists on grossly overestimating taxes it takes a lot of tweaking to get the annual spending, including taxes to something close to reality.

I am not interested in spending as much money as I can, subject to the constraint of a desired bequest. No more than I go to a restaurant with the goal of buying as much food as I can without my credit card going over its limit. In the case of the restaurant, I want to buy a meal I will want to eat. Nothing more.

In the case of lifetime spending, I want to spend what it takes to live as I desire and save the rest. I feel no need to spend more just because I can afford it.

Maximizing lifetime spending definitely is not a goal
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by TomatoTomahto » Sun May 12, 2019 2:30 pm

afan wrote:
Sun May 12, 2019 2:21 pm
In the case of lifetime spending, I want to spend what it takes to live as I desire and save the rest. I feel no need to spend more just because I can afford it.

Maximizing lifetime spending definitely is not a goal
I use it mostly for reassurance that we are not spending too much. We have been renovating our new house, and the numbers are daunting.

I don’t think we will spend half of what MaxiFi says we can.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Maxifi planner

Post by bobcat2 » Sun May 12, 2019 2:46 pm

afan wrote:
Sun May 12, 2019 2:21 pm
IIn the case of lifetime spending, I want to spend what it takes to live as I desire and save the rest. I feel no need to spend more just because I can afford it.

Maximizing lifetime spending definitely is not a goal.
Well, what are you saving more for, other than a bequest goal? If you think you're planned spending is too much then up the bequest value. Certainly you are not saving more so you can dive into more dollars a la Scrooge McDuck. :wink:

Link -https://www.youtube.com/watch?v=NBRrCY5uhWY

Another way of expressing this is that you want to use your financial resources as efficiently as possible. You want to get the greatest spending for the buck out of your lifetime income and you also want to get the maximum bequest from your lifetime income.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: Maxifi planner

Post by afan » Wed May 15, 2019 9:56 am

Well, what are you saving more for, other than a bequest goal? If you think you're planned spending is too much then up the bequest value. Certainly you are not saving more so you can dive into more dollars a la Scrooge McDuck. :wink:
I suppose it is a different way of looking at earning, saving, investing and consumption.

One view is that saving is always saving "for" something. Delaying consumption now in order to achieve more consumption, on some specific goal, in the future. The intuition is that, absent a projected future goal, one would always spend as much as possible now. Thus, if one were saving to fund a bequest, one would specify the amount required, save enough to fund it, then spend any remaining money. The assumption is that there is always something else one would want to buy now and one refrains on some consumption ONLY because saving is required to meet a longer term goal.

An alternative view: spend enough to fund a comfortable life and save the rest. Under this approach, one is not saving "for" anything. One is simply refraining from wasting money on unneeded and unwanted things.

For the purposes of getting Maxifi to give more or less useful results, I input my financial figures, with the work around described to tame its crazy capital gains behavior. Then I move the bequest value until the total of housing and discretionary spending hits values near my actual spending. The bequest then is a projection of what would be left over following that plan. I do want that money to go to my heirs, but I do have a dollar goal for the inheritance. I make one up to control Maxifi.

An alternative is to enter my non housing projected spending as "special expenses" and adjust the bequest until the discretionary spending value is close to zero.

Maxifi customer support says that the program is not intended to be used that way so it might misbehave. They did not explain why. I suspect they did not know. The person telling me this was firmly in the camp that one would always spend as much as possible, subject to some other constraint. So it may have been their inability to comprehend deciding that one had no need for a higher level of consumption.

Back to the restaurant example. I could afford to buy more food than I want to eat, but why should I?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by TimeRunner » Wed May 15, 2019 7:48 pm

afan wrote:
Wed May 15, 2019 9:56 am
Back to the restaurant example. I could afford to buy more food than I want to eat, but why should I?
The example is really more like: I'm happy to eat a hot dog for dinner, so why would I eat in a nice restaurant?

Doesn't sound like this software meets your needs. :wink:
Man assumes more intelligence than dolphins because he achieves so much, while dolphins just have a good time. Dolphins believe they're more intelligent than man - for precisely the same reason. (HGG)

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Re: Maxifi planner

Post by Horton » Sat May 18, 2019 8:47 am

Here's one thing I don't like about Maxifi.

The maximize plan tool recommends postponing Social Security until 70 for myself and 67 for wife. This triggers a step function in our standard of living, particularly at my age 70. I recognize this occurs because it results in the highest lifetime discretionary spending amount. It is also attributable to the smooth withdrawal period from retirement assets.

However, what if I find more "utility" from a constant lifetime discretionary spending amount - spending more from now until age 70 and less after age 70 - rather than trying to maximize the present value of the spending amount? For example, what would you rather have: $1M at age 100 or $5K / year from age 55 until 100? The former will likely give you a higher present value, but the latter, unless you are solely focused on bequests, will give you more utility.

I don't see a way to have Maxifi automatically derive this solution in the most optimal way for my situation. I understand that one way around this situation is to create a compare scenario and enter "Special Expenses" from your assumed retirement age (e.g., 55) until age 70. You can then look at "Total Spending" and see that it is more level over time. From my perspective though this is equivalent to hacking the tool and renders other output on the compare scenario more or less useless (namely, discretionary spending and per adult living standard). Plus, its up to the user to solve for this solution, rather than making it automated.

Last, even this "hack" doesn't really accomplish my goal because it does not reduce post-age 70 spending in order to increase pre-retirement spending. Instead, it holds post-age 70 spending the same and reduces pre-retirement spending in order to facilitate higher spending from retirement age until age 70.
"You must know that there is nothing higher and stronger and more wholesome and good for life in the future than some good memory, especially a memory of childhood, of home." - Dostoyevsky

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Re: Maxifi planner

Post by afan » Sat May 18, 2019 9:20 am

You have the option of adjusting the per adult spending level year by year. If you plan for lower expenses later, you can take this level down to meet your expectations. I don't change it because I assume some costs will go up while others go down.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by afan » Sat May 18, 2019 9:24 am

TimeRunner wrote:
Wed May 15, 2019 7:48 pm
afan wrote:
Wed May 15, 2019 9:56 am
Back to the restaurant example. I could afford to buy more food than I want to eat, but why should I?
The example is really more like: I'm happy to eat a hot dog for dinner, so why would I eat in a nice restaurant?

Doesn't sound like this software meets your needs. :wink:
The hot dog vs "nice" restaurant example is very close. I do not eat hot dogs. Substitute some unseasoned broiled chicken or a protein shake and you have got it.

The software may unintentionally permit me to do my planning, although it's goal of maximum lifetime consumption is not at all what I am looking for. So far the only glaring problem is the capital gains treatment, which they say they might fix in the future.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Maxifi planner

Post by Horton » Wed May 22, 2019 3:36 pm

Horton wrote:
Sat May 18, 2019 8:47 am
Here's one thing I don't like about Maxifi.

The maximize plan tool recommends postponing Social Security until 70 for myself and 67 for wife. This triggers a step function in our standard of living, particularly at my age 70. I recognize this occurs because it results in the highest lifetime discretionary spending amount. It is also attributable to the smooth withdrawal period from retirement assets.

However, what if I find more "utility" from a constant lifetime discretionary spending amount - spending more from now until age 70 and less after age 70 - rather than trying to maximize the present value of the spending amount? For example, what would you rather have: $1M at age 100 or $5K / year from age 55 until 100? The former will likely give you a higher present value, but the latter, unless you are solely focused on bequests, will give you more utility.

I don't see a way to have Maxifi automatically derive this solution in the most optimal way for my situation. I understand that one way around this situation is to create a compare scenario and enter "Special Expenses" from your assumed retirement age (e.g., 55) until age 70. You can then look at "Total Spending" and see that it is more level over time. From my perspective though this is equivalent to hacking the tool and renders other output on the compare scenario more or less useless (namely, discretionary spending and per adult living standard). Plus, its up to the user to solve for this solution, rather than making it automated.

Last, even this "hack" doesn't really accomplish my goal because it does not reduce post-age 70 spending in order to increase pre-retirement spending. Instead, it holds post-age 70 spending the same and reduces pre-retirement spending in order to facilitate higher spending from retirement age until age 70.
After some back and forth with customer support, I now recognize that I was not using the tool properly to solve the "step function" problem described above. I had setup special withdrawals for my retirement accounts AND special expenses. The latter caused all sorts of disruption to the per adult standard of living. By leaving out the special expenses and keeping the special withdrawals, I am able to level out the per adult living standard before and after Social Security.

User error! :oops:
"You must know that there is nothing higher and stronger and more wholesome and good for life in the future than some good memory, especially a memory of childhood, of home." - Dostoyevsky

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