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You are entering them correctly. However you have to realize what the TM is doing. At maturity, if not renewed,  it sells the GIC, but it does not delete it, it’s value is set to 0, and maturity set to null. The money goes into the Cash investment of the account. At the end of the year, it rebalances the account that held the GIC. Your GICs are each in their own account, which are set to 100% fixed-income allocation, since the GIC is fixed-income, it puts the money there, essentially reinvesting it.

Now that may seem odd way to do it, but that is the difficulty with my model that lets you track investments. It realizes that these are your investments today, and knows it may not be your investments in the future, but that when you replace them you will do so with similar ones in terms of rates and asset allocations for the accounts they are in. I’ve been thinking about writing a blog about that.

To remove the expired GICs, you need to take the money out of the accounts they are in. You can move the accounts higher on the Withdrawal priorities so they are emptied first if you need money. Or to guarantee the withdrawal, you can set an Automatic withdrawal for -100% of  the account balance with start and end date on the maturity date. You would also set Deposit Priority limits to 0 to make sure no money gets deposited there if you ever have a surplus at the end of the year.

I call all fixed-income investments Bonds because they all act the same way, sorry of that confusion.

You’re right, there was an issue with AB. I had missed that the restoring of indexation had been made retroactive for 2022.

I’ve checked the new tax calculation of the MRA and for 2022 with 30K interest and 40K of dividends it gets Prov: (AB) $1,568.60.

This includes the Climate incentive of $490, so without it, it’s $2058.60. Taxtips.ca says $2056 but they tend to round before each calculation.

I can see the rules not allowing some dividends depending on the notional accounts, but if you have the revenues, then it should be able to pay out a Salary. To pay the salary, the program checks that there are enough retained earnings or corporate account balances it can draw from. To prevent a circular calculation, it uses the previous year’s retained earnings, because the current year retained earning are not yet calculated (and depend on the salary paid out).

In your scenario, the revenues don’t start until 2023, the same as salary, so it limits the payout in 2023 to what’s in the corporate account. After that it’s fine because 2023 earnings can pay the 2024 salary etc…

We can't easily fix this problem because of the circularity of the retained earnings calculation as mentioned, and the additional complication that any salary paid will add to personal taxes.

In the meantime, now you know how it works, can you start the revenues earlier?

Yes I understand. I put it on my to do list. Thanks

It’s a good article to start thinking about taxes and inflation and how they affect your returns, but obviously I don’t agree with just adjusting your rates of return (the “shorthand metric” at the end), that is way too simplistic and downright misleading. He also misses some points about taxable accounts, many people do.

Yes the dividends are taxed, so that’s a haircut, but if you’re a low income Canadian invest your non-registered portfolio in Canadian stocks, the dividend tax credit can be a boon. If you’re high income, avoid dividend paying stocks, go for growth in non-registered accounts. That growth is tax-free until you sell, and you get the capital gains exemption when you do. That tax break is lost in registered accounts. 

Anyway, not so simple, but luckily Canadians have the MoneyReady App  Maybe I should write a blog post..

There is some reason to my madness for presenting it this way. It is part of my aim of trying users to think in terms of cash-flow like the TIME MACHINE does. So Gross income is all your external sources of income. From that you pay your expenses and taxes. If there’s money left over you save it, if you have a deficit you need to make withdrawals. I don’t think of those withdrawals as income because it’s your money! Unlike actual income from a salary or pension, you have complete control over that spending. Increasing your spending (or taxes!)  should not make you feel richer because you increased your “Gross Income”. It hurts more to see these withdrawals as spending rather than income, but that is what they are.  People generally have no problem with my view of it before retirement, they realize withdrawals are for spending then, but they don’t like it after retirement. 

Now it’s just semantics really, I’m not so attached to it as I sounds. The best argument against my view I think is that withdrawals made from accounts include growth and income earned from your investments and thus could be called income.

Ok, that was my speech for the day, that was fun for me, I hope you enjoyed it! Mostly it allowed me to procrastinate for a few minutes on the on the hard problem of making the reports clearer. It’s hard because I don’t want to confuse users with the changes, don’t want to add columns here as the table is already too big, and it needs stay backwards compatible so that old runs are still comparable.

Here’s what I’m thinking for the TIME TABLE which I think can make both of us happy given what you suggested and my constraints:

1. Rename GROSS INCOME to EXTERNAL INCOME, same calculation.

2. Remove NET INCOME

This removes tax-sounding terms which are kind of misleading here. For a tax calculation you should really look at the year report.

3. Add ACCOUNT WITHDRAWALS. This would be the sum of account withdrawals from all accounts (but excluding Wallets which are external. I’m tempted to call this INTERNAL INCOME but I won’t :)

4. Move TAXES to after ACCOUNT WITHDRAWALS. Same total tax calculation.

Essentially you get: …  EXTERNAL INCOME, ACCOUNT WITHDRAWALS, TAXES, SPENDING, SAVINGS, NET WORTH ...

I think I can make these changes retroactive for backward compatibility in comparing old runs.

Only one graph is affected, I could change it to Net total income and Spending. Net total income being external + withdrawals - taxes.

Then there’s the year reports, and the big report but those won’t require much change. I already added the "Foreign taxes paid” to the year report, unfortunately that is not retroactive.

Thanks for your thoughts and suggestions, sorry for using you as a sounding board!

Yes I made some changes in reports to clear up confusion. “GROSS INCOME” is now called “EXTERNAL INCOME”. No changes to calculation.

Retirees were confused that I didn’t consider account withdrawals as income.

“NET INCOME” is gone (it used to be simply gross income - taxes, so easily calculated if you need it). 

It was replaced by ACCOUNT WITHDRAWALS, which is just the sum of all account withdrawals (not Wallets), and loan proceeds.

SAVINGS is now called NET SAVINGS, No change in calculation.

This removes tax-sounding terms which are kind of misleading here. For a tax calculation you should really look at the year report or the tax values in the spreadsheet.

The year reports were also modified, as was the full report for clarity mostly.

The year and full report  has an additional tax entry called “foreign taxes paid” when relevant (mostly for my USA expats with IRAs), may add that to the spreadsheet too. I’m handling US withholding taxes on Non-registered investments slightly differently than for the IRA (they are calculated, but not in the reports), so I need to see if those investment withholding taxes could be reported there too for completeness.

Sorry I forgot about you, will try to remember to give you a heads up next time,

It partially went to spending. The account deposits in the report is a net value for the year. That account is first of your list of withdrawal priorities, so if you need money in 2023, it’ll take it from there first.

You will see if you compare a run without that automatic saving with a run with the saving, that your Net worth is increased by a 100k in 2023 with the saving.

Without the deposit, there’s a withdrawal of $36,628 because you need money:

With the saving you get $63,371 instead:

What we call ‘EXTERNAL INCOME’ represents the total of your entered INCOMES, CPP, OAS, and other calculated government benefits (CCB for example), pretax.  It will also include net withdrawals from Wallet account(s) but it does not include withdrawals from other accounts. It does not include investment income and is not used to calculate taxes.

External  income = Net income + Taxes

Net income = Spending + Savings

Savings = sum of all net deposits to accounts

The TM does record the shares value as a deposit to the account on the strike date, it also will increase taxes. This is how external income is calculated:

External income = Net income + Taxes

Net income = Spending + Savings

Savings = sum of all net deposits to all accounts

Savings is increased by the deposit, but decreased by the increased taxes that are paid out from accounts. So the boost in External income you are seeing is the net effect of the share value - taxes. So I agree, very cool!

The withdrawal does not trigger the exercise in the TM, it’s in the function to  grow the investments that does it. It checks for hitting that strike date. The options are always exercised on the strike date and trigger the taxes, (if in the money, otherwise they are lost but I suppose that would only happen in a simulation run). The way it’s done is you get shares, not cash, and these can then be sold to accommodate  automatic withdrawals from the account (or priorities if you need the money). After exercise and not withdrawn, the shares just behave as any regular investment.

In an optimized scenario, the TIME MACHINE ignores your set automatic withdrawals and priorities after retirement to instead do withdrawals according to what was suggested by the optimizer algorithm. If that algorithm determined you should keep those shares, then they won’t be sold (but they will be exercised and trigger taxes).

However think of it this way: in real life you would get the cash and have to move it, but the TIME MACHINE/Optimizer is telling you don’t need it for consumption so you can reinvest it in a different account/investment. Just think of the option account after exercise as that new non-registered account holding a similar investment in terms of growth rates as the original underlying stock (it will even start paying dividends at that point if the stock was set to pay dividends). Does that make sense?

Glad you’re having fun! Thanks for the feedback,

Your setup is more complicated than you say.

You have set several spending amounts depending on the date, and added a LEGACY amount. These are hard spending amounts for the TIME MACHINE.

But you’ve also set your top deposit PRIORITY limit to Spending with a 100% limit, so that any excess income amount you have at the end the year will be spent. That’s a “soft amount”. Set that deposit PRIORITY limit to 0% to stay within the hard spending amount, or the TM will spend it all rather than deposit it to accounts/loans in order (and limits) of your deposit PRIORITIES.

Great! So far, the TFSA contribution room grows every year, and is increased by any withdrawals.  The basic TIME MACHINE only does what you tell it to do. But when in Optimizer territory then it will it optimize, then it’s harder to tell what it's doing. If it gives a better a solution than what your inputs are for automatic deposits/withdrawal and priorities, that’s what it’ll show you. It’s quite smart (https://www.moneyreadyapp.ca/blog/post/8).  Because it doesn't use rules-of-thumb but does the hard math and actual optimization for your particular scenario, the why is  harder to figure out post-hoc. There’s many variable to consider (mostly investment rates, taxes, and required withdrawals from LIRAs and LIFs), which it does. It is usually is quite informative to look at the results to help you determine your best strategy.

It’s optional, but its quite powerful and convenient as we update market data nightly so your investments with tickers are automatically updated, dividends are tracked and you can run our portfolio analysis tools. You still need to make changes if you made trades. Another way to get them in automatically is through our Wealthica integration if you’re a Wealthica user, then even changes from trades are updated automatically.