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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 What is withdrawn ends up in your Wallet.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!
The TIME MACHINE treats ROC and dividend distributions the same way so that you do receive both. The difference is in the taxation of those distributions in non-registered accounts.
The TM tracks the ACB for investments starting with the book value you manually entered (or get from Wealthica). The ACB is reduced by the ROC distributions received, which would not be taxable until the ACB reaches zero, at which point they would become taxable capital gains. Of course, if the distributions are reinvested, this increases the ACB so that it may go back up above zero. This is a good case for using the feature for setting the TM to use long-term rates in later years.
To understand what is causing your cash-flow problem would require going into the minutia of your runs. Did you save and compare them side-by-side? It is possible that for some years once the ACB has gone to 0, you would be taxed higher for a ROC distribution than an equivalent amount of Eligible dividend since at low-income levels the latter can be taxed at a lower rate than capital gains. Even small differences in amounts can become large with compound growth and time in the TM.
Let me know if you want me to look at your saved scenarios.
There is no optimization for the age to convert RRSP to RRIF, as it is not really needed. The Withdrawal Optimizer withdraws as is optimal from the RRSP/RRIF. The conversion age required only dictates the required minimum withdrawals once converted. It will use the age you entered to enforce those, mostly for users who have already converted. If you haven’t, best to leave it to last possible age of 71 which is the default, and that gives you and it maximum flexibility. It usually likes to withdraw before then to smooth out the taxes, but that entirely depends on the specifics of your scenario.
Hi everyone,
For completeness, I just wanted to catch up on some recent changes that were either already announced in the other forums or are fairly minor.
- The REPORT now includes a Table of Contents. It has links to navigate the report on the web or the pdf.
- Taxes in the year reports are now broken down by federal, province/territory, CPP, and EI contributions.
- The Sample report pdf download has been updated.
- Joint (Not Really) accounts. Useful for Non-Registered accounts that are Joint to avoid probate, but are used as individual accounts to avoid attribution rules and simplify tax filing.
- CPP/QPP Death Benefit. It will only be calculated if you have not already started taking CPP/QPP.
- Union dues have been added to the list of deductible EXPENSES.
- If you have already started U.S. Social Security benefits. If you or your spouse are also currently receiving WEP (including CPP/QPP) or GPO pensions, we now ask you for the amount of the U.S. Social Security benefits you are receiving. This allows for the calculation of the WEP and GPO amounts that were used by the SSA to calculate your benefits (including spousal benefits). The TIME MACHINE will update the amounts as required should you have set further WEP or GPO pensions to be started in the future and will update your benefit calculations.