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I think you are interpreting the results correctly. You can see that adding a large expense would not surprisingly increase the chance of running out of money in volatile markets.
The Choose your Legacy tool, finds the level of expenses in every year such that you leave a legacy of your choosing AND not have a cash-flow problem, that is not run out of money. However, that is calculated based on the rates you set for investment growth, interest rates, and inflation rates.
The Choose Your Legacy tool can handle those set rates changing in every year, and it is possible to run it on rates coming from the market model for simulations. You can actually do that now. First, in RATES/YIELDS/CURRENCIES you can Set-up new Market Simulation. Then you can choose the option to Run a TIME MACHINE with Market Model Simulation. You will then have the option to run the Choose Your Legacy tool on that run, it will use the same simulated rates.
So I suppose we could run Choose your Legacy on each of 100 simulated runs and then report an average (or median) value for the Legacy EXPENSES to add. Or something like that, as it will take some thought and experimentation to determine how best to report on the results. The Choose your Legacy tool algorithm runs the TIME MACHINE many times itself, and it's not possible to know in advance how many runs it will take. Doing that 100 times could be very slow.
So the short answer is yes, it's possible but not trivial. I will look into it but it could take a while.
The Alternative Minimum Tax is now implemented (federally and for all provinces) and we make it available for MoneyReady App subscribed users only.
The AMT is a separate tax calculation done to make sure that wealthy Canadians that have little or no regular tax to pay due to claimed tax deductions and credits, still have to pay a minimum tax. This has always applied rarely, and it will be even more rarely applicable with the recent changes to the AMT calculation itself, and the recently announced changes to the capital-gains inclusion rate.
Because it applies so rarely, you can set whether to have it calculated it or not in your PREFERENCES. Most of you can leave the feature off, as it will slow down your TIME MACHINE runs. Just turn it on if you are running a scenario where you think it may apply, or if you have made AMT payments in the past.
It will always be calculated for Advisor clients.
If you do choose to have it calculated (and have a valid subscription), you will be able to enter any AMT tax paid in the last 7 years in the tax input screens before running the TIME MACHINE. The TIME MACHINE also calculates any refund of the previous year's AMT payments.
The TIME MACHINE will show a Warning if the tax is applied and the detailed year reports will show you any AMT paid or any AMT carryover applied.
Important change for everyone:
To accommodate the AMT calculation we now need to ask you for the current year's capital losses and the previous year's carried-forward capital losses separately in the tax input screens.
Please treat all tax calculations in the MoneyReady App as approximate as we do not consider everything.
Let me know if you have any questions or issues.
Yes, indeed it does.
You may want to make partial conversions of an RRSP to RRIF at age 65 and until the RRSP is converted. This is because withdrawals from an RRIF are eligible for the pension tax credit and can be split as pension income with your spouse, whereas RRSP withdrawals are not. You can arrange with your RRSP provider to make partial conversions, to withdraw enough from the RRSP for the tax benefits, without converting the full account (which would then force yearly taxable withdrawals). This is automatically implemented in the TIME MACHINE. Withdrawals from an RRSP from age 65 are automatically considered pension income. You may want to force those withdrawals by setting an AUTOMATIC Withdrawal starting the year the account owner turns 65. This also applies to all other RRSP-like account types (GRSPs, DPSPs, DCPPs, and LIRAs).
To speed up analyses like Simulations, Scans, and the CPP/QPP and Withdrawal Optimiser that require many TIME MACHINES runs, we now distribute those runs over several machines so that they are done in parallel. Mileage varies, but our testing has shown the analyes are now 3 to 8 times faster, which is a great improvement. We hire machines on demand just for your own individual jobs, so that only under extreme traffic conditions will they be waiting in queue.
The only downside is that showing you the actual progress of an analysis is a little more complicated, as progress is no longer linear.
You will now see "0% done" at the start as a worker is hired which gets the jobs ready to distribute. You'll then see "Distributing tasks (x% done)" with the x increasing up to 99% as the tasks get distributed to other workers. It could look stuck there for a bit, as it waits for tasks to come back, then you will see "Tasks done (x%)". This last one increases pretty quickly as the tasks come back finished.
Although the analyses are much faster, they can still take some time so please be patient.
Enjoy the long weekend!
The latest Federal budget proposed a higher capital gains inclusion rate for capital gains of 66.67%. This would apply to all capital gains for corporations, and to capital gains above $250,000 for individuals. This is supposed to be applied from June 28, 2024. Many people have asked for its implementation in the app already, and the app applies it for all of 2024 (since April 19, 2024 when we implemented it).
The TIME MACHINE has mostly a one-year resolution. Do not use the app for last-minute tax planning, you should use a tax advisor for that. We will roll back this change if the proposal does not pass although it seems likely to pass. We will be implementing other tax changes announced in the latest federal and provincial budgets in the next few weeks, so you may see slight differences in tax calculations.
You can create an AUTOMATIC WITHDRAWAL.
From the Select Account for deposit/withdrawal dropdown menu, select the RRSP you want to withdraw from.
From the Select Contributor of deposit or recipient of withdrawal dropdown menu, select "Other". Normally taxes are applied to the owner of the account, but making the recipient "Other" will make it not taxed.
Then fill in the amount and the dates to begin and end (same date for a lump sum).
The funds will be taken from the account tax-free and will be considered already spent. It'll show up as "Withdrawal to Other" in the year report.
You can adjust the pension income for that entry in INCOMES.
Thanks, I'm glad you are finding it useful and sleeping soundly! I like to say the app is only as complicated as is your financial situation. That said, it's easy for a financial situation to get complicated quickly given Canada's tax and pension systems. We do try to make it as easy as possible and still be comprehensive and accurate.
I recommend using the Withdrawal Optimizer to help you determine your best withdrawal strategy, but if you want to study the effect yourself you can certainly do that using AUTOMATIC DEPOSITS/WITHDRAWALS.
You can have entries for the registered accounts you want to withdraw from, specifying a yearly amount or a yearly % of the account balance, for any date range. The withdrawals will be made in the TIME MACHINE and will contribute to the required minimum withdrawal if one is required. It may not be made (or not in full) if there is a maximum withdrawal limit (like for some LIFs). What is withdrawn ends up in your Wallet.
You can also specify entries for automatic deposits to TFSAs or Non-registered accounts of your choosing. You can match the date ranges and amounts you set for the withdrawals you set on the account above. However, if you set the withdrawal as % of the account balance, you will not know what that amount will be exactly. For TFSAs, the TM will never go over the contribution room whatever you set. The funds for the deposits will come from your Wallet and so should use up the withdrawals you set up.
You can also set up SCANS so you can run multiple scenarios at once. In this case, you could put a scan on the amounts you have set for those automating savings/withdrawals to cover a range. The table of results for the scan will show you the legacy and total taxes paid so you can easily identify the best values to use.
No worries. There also might be some necessary selling from accounts to cover the probate fees on top of other usual expenses, leading to higher taxable income and taxes that year, possibly capital gains if the withdrawals are from non-registered accounts.
Thanks. I'm sure you would also not use a broken clock even though it's accurate twice a day :)
To apply the spousal rollover as you describe correctly, you must make sure you have selected "Spouse" as the beneficiary of your account where you edit the account properties. In that case, you should see something like "ACCOUNT NON-REGISTERED rolled over to spouse" in the warnings column of the year of your death. The account is not taxed in the TIME MACHINE, and the balance and its cost-basis continue on as owned by your spouse. Otherwise, you will see this warning: "NON-REGISTERED ACCOUNT liquidated to Estate", indicating the account has been deemed disposed and taxed.
Even if the account is rolled over to the spouse, probate still applies unless the account is also held jointly with your spouse. So even though there is no tax, there may be probate fees to pay (depending on your province). The warnings column also gives you that information like this: "To probate xxx,xxx.xx. Fees: x,xxx.xx". I think this may be why you are thinking the account is taxed when it isn't.
To avoid probate on the account, it needs to be a Joint account (both in real life and the TIME MACHINE). Then you need to consider CRA attribution rules on Joint accounts. Please read p. 30 of the MoneyReady App eBook for details on setting up Joint accounts.
Great! And good point about the readvanceable mortgage.
I'm wondering if you're not looking at the HELOC balance in Today's dollars? The limit is not indexed, and $500,000 will appear a lot lower that far in the future.
Check the values in Future dollars. If that's not the issue, just contact me and I can go over your scenario and results.
Interesting question. The two models are not comparable. I think you answered the question yourself. The Actuarial Society model we use in the Monte Carlo simulations is based on probabilities based on historical market data and some current market and economic conditions to simulate both short-term and long-term changes in yields. It models the variability and even includes "regime switching" probabilities of going from optimistic to pessimistic and back. This allows to consider the variability of returns. Given that we run that model on your entire scenario, it also allows us to consider the sequence of returns, that is the timing of your planned deposits and withdrawals in a varying market. When the yields don't change, that is not so much an issue. I'm sure some similar models are used by the FP Canada Standard Council to come up with their long-term projections as well as other factors.
For long-term projections, we encourage you to use long-term rates, and we set them to the FP Canada guideline as default, but you can change those to whatever you want.
Your default inflation rate you get is the BOC rate the day you register on the app. You're right we could put the current FP Canada projection instead. For years I had it set at 2%, the BOC target rate. But when inflation was shooting up I made that change. It would be very confusing to change it without your knowledge so we don't. You can set the inflation rate to whatever you want in RATES/YIELDS/CURRENCIES. We tell you there what the current BOC rate is, but you can set it to what you like. You can also set new rates to start at anytime in the future if you have your own ideas of where interest rates are going. Inflation should be near the top of the table of rates, but if you have a lot of rates and can't see it, just type Inflation in the search box at the top.
Hi and welcome.
The Optimizer uses a mathematical algorithm to find the optimum, not simple rules of thumb. If we set your scenario to the optimal plan found by the Optimizer, it would look like a very complicated large mess. The reason is that the TIME MACHINE run applies the algorithm's recommendations by setting AUTOMATIC withdrawals (sometimes savings) for each of the appropriate account types and each year. The run resolves that to your actual accounts, and can also make additional adjustments to your PRIORITIES on the fly in accommodating the suggestions including a fuller and more accurate tax calculation that the Optimizer algorithm can handle on its own.
You can see what it did in the results shown. The details are in the TIMETABLE, but the most useful output to analyse what it did, are the Consumption graphs and the Cash-Flow summary. Those give you a good indication of where money is coming from in every year. You can use that to set up your scenario to mimic it by adjusting your AUTOMATIC savings/withdrawals and/or PRIORITES. This way you can match the Optimizer, and possibly even beat it. This will also give you a much better understanding of your plan, which will make it much easier for you to follow.
I remembered this morning that you can actually already set any EXPENSE to decrease (or increase) smoothly with the years by adjusting how you set that expense to be indexed (or not) with inflation.
You can set how the EXPENSE grows in time between the start and end dates. We ask if the EXPENSE is indexed, a multiplier (default is 1), and an addend rate (default is 0% and can be negative). If you check "Index to inflation", the EXPENSE will grow with inflation multiplied by the multiplier, plus the specified addend rate. Essentially:
growth rate = inflation x multiplier + addend
If not set to be indexed with inflation, you can still set an alternate rate to grow it. In that case:
growth rate = addend.
For your example of reducing the expense by 2% a year, you would set the addend to -2.
You can see what that amounts to in today's and future dollars in the graph below your list of EXPENSES.
I've been asked that before, because of that book. You have the option to enter multiple expenses, and you can start and end them at whatever dates you want. I find the 1%, 2% a year reduction a great rule of thumb that works when looking at an average over many people, but not so easy to do in practice for an individual.
I think it's more reasonable and useful planning to set an EXPENSE entry for your basic non-discretionary living expenses. You may need more than one if you are thinking of moving into a retirement home at some point or think you will need additional elder care. And then have entries for discretionary expenses, for which you can vary the amounts for different date ranges as you envision your life's circumstances and goals. For retirees, that's often the travel budget, and it's not easy to reduce that in 1% increments.
Edited: See my response below on how you can also adjust the growth rate of any expense.
There's nothing in the documentation about that and the AI loves to make stuff up when it doesn't know. In this case, it is on to something though, because that feature does exist. But is not available to users. I use it mostly for testing things. Particularly near the end of the year, to make sure that nothing will break when the new year rolls around. I'll look into making it available and let you know.
Thanks
Today I'm happy to announce parameter SCANS for the TIME MACHINE.
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 6 saved runs that you can have at a time, 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.
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. The last run that will be done is for your current unmodified scenario.
For example: Say you have quotes for different term life insurance values. You can get a $100,000 death benefit for a $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 $1000 and the increment $1000. 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.
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 PROFILE table, and 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.
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 view each one and compare them pairwise. Just like saved runs, you can restore its 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.
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.
Your list of saved runs now has an extra table with the list of SCANS. You can click on a scan to view it. SCANS have an automatic description added with the inputs that you entered for that scan. You can add additional information in the description. Changing the description will not change the parameters, you need to set up a new scan to do that. For advisors, note that SCANS and their results will be visible to clients by default. You can remove that permission for any scan by unchecking `Allow client to view results' where you go to edit the SCAN name and description.
You can 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.
This feature is included with any subscription. Let me know if you have any questions or feedback.
Enjoy!