Set up SCAN

To explore the effects of systematically changing one or more of the many parameters you have entered in your scenario for the TIME MACHINE, we now allow SCANS. In addition to the 100 saved runs that you can have at a time as described above, we also allow you to save up to 6 SCANS at a time. Each scan can contain up to 101 runs.

In a scan, you can vary most values for most of the entities you have entered in your scenario. You will first select the type of entity from a drop-down list (e.g., EXPENSES, INCOMES, INVESTMENTS, etc.), and then select the entity (e.g., the EXPENSE) and the kind of values that apply to that entity (amount, percentage, date, etc.). You then enter a starting value, an increment value (which can be negative for a decrement), and a stop value. For dates, the increment is in full years. A TIME MACHINE run will be done for each value of that parameter, keeping everything else constant in your scenario. You can also select to run the Withdrawal Optimizer for each of the runs. A last run that will also be done for your current unmodified scenario.

Because different parameters often move in tandem, you can add additional parameters in exactly the same way. Although there is no limit to the number of parameters you can add, there is a limit to the total number of runs (100) we allow per SCAN. Each parameter is linked to the others, and the final number of runs will also be determined by the parameter with the fewest scan values. You will be able to see a table of the values that will be used for each run to confirm that you have set up the SCAN as you want before actually running it. You can modify the SCANs parameters, add parameters, and remove parameters.

SCANS are a little dangerous because there is little or no checking of your inputs at this level. You may be instructing the TIME MACHINE into a parameter space that is disallowed for whatever reason (a loan can't be amortized for example), and it may even crash. If there is a crash, the scans should continue running, but you won't get the results of any run that crashed.

Canned SCANS

1. Inflation risk:
   Inflation is part of the model we use in Monte Carlo simulations. However, you may just want to see the effect of just varying the inflation rate. This scan varies the inflation rate from 1% to 15%, and all your inputs linked to inflation will be affected. Because fixed-income rates of return are correlated with inflation, long-term expected return rates by asset class will be applied, and the fixed-income rate set to the inflation rate -1%.
2. Longevity risk:
   This scan varies the date of death from when you are 85 years old to 110 years old. If there is a spouse, the scan will be for the death of the oldest spouse at those ages. The other spouse will be then be set to die on the same date.
3. Survivorship risk:
   This scan varies the date of death of the youngest spouse for a number of years after the first one dies. This is used to assess life insurance needs.
4. Early retirement risk:
   This scan varies the date of retirement from age 40 (or current age if older) to age 65. All entities linked to that LIFE EVENT will follow. You can run this for either spouse.

Internal SCANS

1. Reduce the OAS Minimum income recovery threshold:
   This scan reduces the current OAS Minimum income recovery threshold by a factor of 0.9 (a 10% reduction) to 0 (no minimum income for clawback).
2. Reduce capital gains exemption on sale of principal residence:
   This scan reduces the current capital gains exemption on the sale of principal residence by a factor of 0.9 (a 10% reduction) to 0 (no exemption).
3. Reduce RRIF/LIF required minimum withdrawals:
   This scan reduces the current RRIF and LIF required minimum withdrawals by a factor of 0.9 (a 10% reduction) to 0 (no minimum withdrawals required).
4. Capital gains inclusion rate:
   This scan changes the current (50%) realised capital gains inclusion rate into taxable income from 0% (no tax on capital gains), to 100% (capital gains fully taxed as regular income). Only applies to non-registered investments.

More examples of SCANs you can build yourself:

1. Term Life insurance quotes:
   Say you have quotes for different term life insurance values. You can get a $100,000 death benefit for $1,000/year premium, and every additional $100,000 of coverage costs $1,000/year. To set up this SCAN, you would select INSURANCE from the first dropdown, then select "death benefit" from the second. To explore a death benefit from $100,000 to $1,000,000 in $100,000 increments, the starting value would be $100,000, the increment $100,000, and the stop value $1,000,000. Once those are entered you can `Save and add a parameter'. Again you would select INSURANCE from the first dropdown, then select "premium" from the second. The starting value would then be $1,000 and the increment $1,000. The stop value for a million dollars of coverage would be $10,000 in this case. If you enter a stop value less than that, say $8,000, the last run would be for $800,000 of coverage not a million. If you enter a stop value that is higher than $10,000, the runs will still stop when the stop on the death benefit is reached. In other words, the first of the stop conditions to be reached ends the run.
2. Retirement date and defined benefit pension plan:
   Here’s another more complicated example: Say you just received your statement from your defined benefit pension plan. It shows you how much you will get in pension income and bridge benefits if you start your pension at 55, 60, 65, and 70. You are considering when to retire and wish to explore those options. You would select the LIFE EVENT table, then set the start date of retirement. Set a starting date at your retirement date, increment 5 as dates are incremented in years, and stop value of your retirement date at age 70. Because you have linked INCOMES, EXPENSES, and SAVINGS to your retirement date, the TIME MACHINE will automatically also adjust the start/end dates for those entries as well. You would then add the parameter for the table INCOMES and select the pension you've entered. You would add the value for the pension from your statement at 55, then for the increment enter the difference between the value at 60 and 55. You can add a very high value for the stop as the runs will stop after 4 runs anyway due to the date of retirement parameter. The pension may not increase linearly, however, so the increment may only be approximate in the SCAN; you can always run another TIME MACHINE with a more accurate value once you have narrowed down your options. You can then add another parameter for the bridge pension in the same way as for the pension. The TIME MACHINE will not pay out a bridge pension after 65 anyway, so again you can set a very high number for the stop value. This is an example where you may want to run the SCAN using the Withdrawal Optimizer option to make sure your withdrawal strategy after retirement is also optimized in each of the runs.
3. CCPC Salary versus Dividends:
   The last two SCAN examples I want to give are for CCPC optimizations. In the first, we want to optimize salary versus dividends when taking income from a CCPC. Say you want to distribute $100,000 of the corporation's revenues to its owner. Distributing dividends is advantageous to the CCPC as it can release RDTOH tax credits to the corporation, the recipient can receive Capital dividends tax-free and although the income from eligible and non-eligible dividends are grossed up, the recipient will be able to claim the dividend tax credits. If the income is taken as salary, it will be taxed as income, but will contribute to earned income, potentially increasing RRSP contribution room so that it can be deducted and invested with tax-free growth in an RRSP. The income can also add to CPP/QPP contributions and thus allow for a higher CPP/QPP pension. What is best to do to maximize the value of the CCPC's owner estate, including the value of the CCPC? For this scan you would enter both a salary to the income owner, and an Optimized Dividends entry. You can set the first Scan parameter to vary the amount of the salary, say from 0 to \$100,000 in increments of $1,000, and the second parameter would be for the amount of the Optimized Dividends entry from \$100,000 down to 0 (increments of -$1,000). The TIME MACHINE runs will thus cover the range of salary and dividends paid so that they always sum to $100,000.
4. CCPC versus Personal account withdrawals:
   In the second, we want to optimize the source of income in retirement considering both your personal accounts and the CCPC investment account(s). CCPC accounts are depleted by entering INCOME entries for withdrawing dividends from the corporation. You would thus set up to SCAN on the amount for the Optimized Dividends INCOME you entered starting at retirement. This entry will already optimize for the relative distributions of capital, eligible and non-eligible dividends. You would then run the SCAN using the Withdrawal Optimizer option to make sure your withdrawal strategy from your personal accounts is also optimized. Increasing the amount of dividend income will automatically decrease the amount of income necessary from your personal accounts since the total amount of consumption (EXPENSES) remains the same. You can thus find the optimal level of dividends to withdraw, to maximize your estate including the value of the CCPC at death.

Scan Results

When the runs are finished, you will see a table with some stats (total taxes paid, legacy, to estate, etc.) for each of the runs in a given SCAN, similar to your list of saved runs. You will be able to see if any run leads to a cash-flow problem immediately. Just like saved runs, you can view each one, and compare them pairwise. You can restore any's scenario. SCAN runs have an automatic description added to them that shows the values of the parameters used in that run. Its name is just the TIME MACHINE run number. You can modify the name and the description if you want.

Scan parameters are saved with the SCAN and we be able to re-run a SCAN on your current scenario. The SCAN's previous runs will be deleted and replaced with the new runs. For example, you could change the age of death in your scenario, and re-run the life insurance scan for that age of death. Or you can just re-run a scan in a few months with updated values of your accounts and other entities. To avoid crashes, make sure the parameters of the scan are still applicable to the updated scenario.