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Accounting for pension deductions (RRSP)

When a DB pension plan says it works with CPP, that is to indicate that if you start taking the DB pension earlier than 65, the pension provides a bridge-benefit that is meant to be a CPP-like benefit untill age 65 (when CPP is presumed to actually start). There is actually no synchronization or even communication with CPP. You can start CPP any age from 60 to 70 whenever you start collecting DB pension benefits, and the DB will not affect CPP payments in any way (only when you stop contributing to CPP affects it). If you delay CPP past 65, the CPP amount is increased, and you will see that in the TIME MACHINE results. We use a slightly greyer font to indicate amounts owned by the Spouse in the TIME TABLE, it doesn't mean anything else. I suppose that is an unfortunate use of colour, I'll see if I can change it.

BTW In the MoneyReady App you can enter a bridge pension, as a separate INCOME entry.

 

Accounting for pension deductions (RRSP)

Yes. You are reffering to the Pension Adjustment (PA) which is a applied for both private and public defined-benefit pension plans and reduces the RRSP contribution limit. The PA calculation depends on the specifics on the pension plan. Your pension formula determines what is called the accrued benefit that determines the PA. You can ask your pension provider for what that is. For most public pensions, it is 2% (the max), and we ask you for that when you enter or edit a pension income. You must  make sure to click Submit on the the Add/Edit income form, and if the income is a DB Pension it will then ask you for specifics on that pension including:

Percent of salary accrued benefit per year, usually close to 2 (percent), check your pension formula

If you don't know, enter 2. The TIME MACHINE does calculate the PA given that and reduces the contribution room automatically.

That form also asks you for the salary it is linked to if you are still contributing to the pension, and you would have to have entered that as a seperate income previously. Other inputs on that form are for calculations of survivor benefits, and for estimating a commuted value (although that is only a gross estimate, only your pension provided knows for sure).

 

Notification emails from the MoneyReady Forum

You can now receive email notifications from the MoneyReady Forum.

This is turned off by default. To turn it on, first log in. On the Forum page, click on the arrow next to your username to go to Settings. There you can select from 3 options:

  1.  Email me when there is a new Post in a Topic that I track
  2.  Email me when there is a new Topic in the Announcements forum
  3.  Email me when there is a new Topic in any Forum

Click Save once you've made your selection. You can select all 3 options but you will only get 1 email if more than one option applies for a new post.

I recommend you select option 2 to be immediately informed of any new features and changes on the MoneyReady App.

You can turn off the emails anytime by changings your Settings again.

 

Wealthica announcement today

Today Wealthica announced Free to Fee. That is no more free automatic updating of your accounts, you need to subscribe for a fee with them.

How does this affect your investments entered in the MoneyReady App?

We update whatever Wealthica gives us, so if you are subcribed with them that will continue.

We also update any investments you've previously entered with Wealthica with FundData automatically. This updates current values based on market data, given the number of shares that were entered. If you no longer have a Wealthica subcription, you just have to make sure to update your investment shares and cost basis any time you make a transaction on those investments.

If you've never had a Wealthica subscription (or never linked) and want your accounts updated automatically, for each of the investments you want to track, make sure to "Add investment" to the account its in, by the investment's currency, and in the "Symbol Search. Start typing name or symbol for Stock, ETF, Mutual F und or Segregated Fund" box enter that investment. For these  entered investments, values are updated nightly with market data from FundData. You just have to make sure to update your investment shares and cost basis any time you make a transaction on those investments.

If you have a valid Wealthica subscription and linked to Wealthica, even transactions are automatically updated for you so you will see updated values, shares and book values automatically.

 

 

 

 

 

 

Credit Balance on a Credit Card

This is an old post, but I only recently realised the negative credit card balance can come from a Wealthica automatically uptated account, so not one you entered manually. It is dealt with by adding it as a deposit to your Wallet account in the TIME MACHINE so it's automatically taken care of.

No TFSA for US tax reasons
I have finally addressed the issue of not letting you run the Withdrawal Optimizer without a TFSA.
For optimizing to make any sense in the first place you need at least two of the three types of accounts (TFSA, TDA, and Non-registered), or there is no optimizing to be done. This is true for each spouse (as they are actually optimized individually). The app still requires that, but no longer requires one of the accounts to be a TFSA, you can delete your wife’s TFSA.
 
If no TFSA is set, the Optimizer sets the TFSA room to 0 in in all years so no deposits are ever made to it, and will only use the Non-registered account instead if it really needs to deposit excess RMDs so you truly just get optimization over the two accounts (TDA and Non-Registered). 
 
No TFSA for US tax reasons

Ouch, that’s a tough one. What you did was good, but the Withdrawal Optimizer algorithm creates its own AUTOMATIC deposits/withdrawals and ignores your Priorities. That’s kind of the point of the Optimizer. Let me look into it to see if I can remove the requirement for the TFSA, or at least give you the option to if the holder is a US citizen. Strictly speaking the algorithm does not require a TFSA, but for most Canadians it is so advantageous to have one (for both spouses), that I kind of force it on people. I did not think about the tax problem for US citizens. Removing it from my implementation of the algorithm might also not be trivial. 

I’ll be in touch,
Elisabeth
Reverse mortgage?
We haven’t  implemented reverse mortgages per-se as these are contracts with many bells and whistles, too many questions to ask.
However we allow you to enter LOANS linked to properties and we allow you to modify the payments. For a reverse mortgage I’ll assume the payment is 0, the interest is all added to principal.
 
If you enter it as an amortizing term loan, modifying the payments to 0, you’ll get an error that the loan can’t be amortized.
However you can approximate it with a HELOC interest-only Loan. We also allow you to modify the loan to not make payments on it.
 
Enter the reverse mortgage as a HELOC loan, make sure to link the REAL ESTATE property where it asks "Select the collateral Property if mortgage loan,“
You need to enter the interest rate charged, be careful to enter it as the rate above prime (enter a negative rate if below prime). 
Then click on Modify payments at the bottom.
 
I’ve added the possibility of not making payments altogether if you enter -1 as the new payment amount (otherwise it’s the amount to add to principal repayments).
Setting -1 will tell the TIME MACHINE to add the interest to the principal.
You can set the From date to whenever the loan started (or will start), and leave the To date blank. 
The Time Machine will repay the loan when the property is sold or at death.
You can add as many loans this way as you like, each for the amount borrowed at the time it was or will be borrowed.
Combined RMDs from 2 RRIF accounts at same institution

Ah ok. Now I understand why the balance kept jumping up from zero. 

The $1 workaround works well. 
 
Thank you
Combined RMDs from 2 RRIF accounts at same institution
The app calculates the RMD for each account separately and pays it from that account. Only if it can’t get the  full RMD due to lack of funds will it try to get it from another account (hopefully a rare situation).  Not much I can do about that.
So the trick to set the previous year’s account value to 0 would work for the current year to not have an RMD. Except, that given that many users skip entering last year’s balance and current withdrawal, if the reported balance is set to 0 (the default), the app sets  it to the current balance to calculate an approximate RMD that is probably more reasonable. Set it to 1$ to work arount that.
No dividends?
You want to enter your expected yields  not actual current yields,  and I wouldn’t want to assume long term future rates based on the current rates.  We show you the past 1 year yields in the tooltips from the data we get from Fundata if we have it for that security, (Wealthica doesn’t give that, just the price). 
 
You might want to use the “Change all rates for all investments at once” to set all your rates. It’ll set the rates for each investment according to the expected rates you input on that form and the asset association of the investment. It’s convenient but a little dangerous, so I suggest you save your current rates by running a TIME MACHINE and saving the scenario so you can retrieve it with your current rates if necessary.
No dividends?

Make sure you have set an expected dividend yield for all the investments.

Optimizing expenses
The Withdrawal Optimizer does not optimize expenses, only withdrawals. It maximizes the Legacy doing just what you describe (see https://www.moneyreadyapp.ca/blog/post/8 for details). If we were to allow it to optimize expenses, it would set them to 0 in all years! We can only optimize withdrawals given a known level of consumption, and in all years since it optimizes over your whole retirement.
 
The approach to take is to first use the Choose your Legacy tool to determine the spending level that gets you close to what you want in terms of legacy. That algorithm also considers taxes, clawbacks and RMDs in every year (see https://www.moneyreadyapp.ca/blog/post/10 although I don’t go into quite as much detail in that post ). It does not assume the amount to increase/decrease expenses will be the same every year, so you may see jumps up and down in the suggested expenses depending upon the scenario. It does try to minimize the number of times you would need to change the spending to make it easier for you to plan, but it will change it if it has to, particularly to avoid running out of money in any year. For example it might be financially advantageous even after tax to not spend a dime until the day you die and spend it all then, but that would not be a very useful plan. 
The Choose your Legacy tool  does not optimize the account withdrawals, it just uses your set strategy given your PRIORITIES and AUTOMATIC deposits/withdrawals.
 
Use the Withdrawal Optimizer as a second step to optimize the withdrawal strategy that meets that level of consumption suggested. If that gives you a much higher legacy, then use those results to check them against the results with your set strategy (your PRIORITIES and AUTOMATIC deposits/withdrawals) to see if you can improve it. It’s best to understand what the plan is doing, and if you can match the Withdrawal Optimizer, then you can be confident your plan is optimal.
 
Those two tools are sophisticated and work well, and their combination is powerful. I’m always looking for better optimization algorithms,
Entering GICs
When you manually add an account, if you enter the asset allocation for it where it asks (%Fixed income, %Equities) instead of leaving those fields blank, it will automatically create a Portfolio investment for you with that asset allocation. This is convenient for people who do not want to enter individual securities but just keep track of the balance of their portfolio. In that case, they are done.
 
You can still add individual securities to the account. Go to the investments for the account and below the table are the buttons to Add investments in different currencies. Clicking on + Add CAD investment will then ask for the Investment Type, and you can select the "GIC, Bond or Term deposit” from all the types, and add a name for it. Then it will ask you for the information for the investment including rate and maturity.
 
So you can add those GICs manually, and delete the Portfolio investments. 
GICs are a little tricky to manage for the TIME MACHINE. It will respect their maturity date and never sell them before then even if money is required. You can also set future renewal dates and rates for each GIC in RATES/YIELDS/CURRENCIES. Once their term is up however it might get reinvested automatically anyway if money is not needed.
Sankey Cash Flow Diagrams

I'm happy to announce a new visualization for cash-flows you can find for every year in the TIME MACHINE by clicking on the year in the first column of the TIMETABLE.

These are called Sankey Diagrams and here is an example of what that can look like:

Sankey Cash Flow Diagram

From left to right, we first separate out Income sources as External income and Withdrawals from accounts.
From income you then get Spending, which is then broken down by your entered Expenses, grouped by type if you set up types. Then  Deposits to accounts, which are broken up by account, then Loan payments and Lastly Taxes.
This makes it easy to see where the money is coming from and where it's going without looking at numbers. The numbers are still shown below as tables, and you can click also on the graph to get details (not the one shown here, it's just an image).
 
Because it required changes to the TIME MACHINE the feature is not entirely backwards compatible with old runs, but if it can get a plot that makes any sense,  you should be able to see it even on old runs, otherwise some years may not show one. Best to get fresh runs.
You can even see 2 plots side-by-side in run comparisons.
 
I hope you like these new diagrams. Please let me know if you see any issues or have suggestions.
Major update for RESPs
  1. We’ve added support for Family RESPs.
  2. We’ve added support for naming the same beneficiary to multiple RESPs (Individual or Family).
  3. We’ve added support for the Québec Education Savings Incentive (QESI).
  4. We’ve added support for RESPs from which funds have been previously withdrawn.
Please the RESP Help page or eBook for details. Let me know if you have any questions
 
Do ETF investments automatically deal with foreign withholding taxes?

Yes. The app considers foreign witholding taxes for US investments in Non-Registered, TFSA, RESP and RDSP accounts. For Non-registered accounts the app considers the foreign tax credit that can be used to recover them.

Do ETF investments automatically take into account MER fees?

All investment return yields should be entered net of fees.

We have not yet implemented a reporting feature for MER fees but the feature is planned for.

Must read on Permanent Life Insurance

White-paper on permanent-life-insurance. From PLW (an investment advisor firm):

Life insurance is a financial contract that pays out when the life of the insured ends. This paper is designed to give an overview of life insurance as a concept, including an analysis of life insurance as an investment. We observe anecdotally and empirically that some types of life insurance are sold more as investments than as risk transfer contracts. We call this practice into question through analysis of after-tax returns for traditional investments and life insurance. We suggest that the motivations to sell insurance as an investment are, in many cases, related to conflicts of interest.

 

 

Current year

Yes that make perfect sense. Unfortunately the Withdrawal Optimizer algorithm only works for full years after retirement, so for the current year there is no optimization (I'm working on it  but is not a trivial problem). The TIME MACHINE will always withdraw the minimum required from RIF accounts, which is why the app asks you for those accounts, your balance at the end of last year and how much you've already withdrawn this year, if any (you can enter that in the ACCOUNT's properties, you may need to click submit to see that on the next screen). 

To plan this year, you can set to have withdrawals in AUTOMATIC SAVINGS/WITHDRAWALS as I said before. If the amount is higher than what was already mandated to withdraw it will take that much more.  You will always see what has been withdrawn from today in the reports of the TIME MACHINE.