Friday, November 25, 2016

How to enter defined benefit pension amounts


Question:

I have entered defined benefit company plans for me and my spouse. My report is showing much higher pension amounts.

It seems accurate for current 2016, but much too high starting next year 2017: ($105,620 for 2016, and $178,211 for 2017 combined).

Here is my input:

For me:

  • Bridge Pension Payable Until Age 65: $74,655
  • Lifetime Pension Payable at Age 65: $61,895

For my spouse:

  • Bridge Pension Payable Until Age 65: $31,200
  • Lifetime Pension Payable at Age 65: $23,520

Can you help, do you see where I may be entering inaccurately?

Answer:

The lifetime pensions are correct.

For you, the bridge should be $12,760 (74,655 - 61,895). If it's in payment, enter it as a "Former Employer Plan", otherwise there will be accruals between now and retirement. The way you have it should be OK, as you are already 60.

The same comments apply to your spouse, please enter the annual bridge only (31,200 - 23,520).

Note that you can see detailed cash flow tables for each spouses and both combined at the bottom of the 'Accumulations' and 'Income Forecast' tabs.

Tuesday, November 22, 2016

Using RetireWare for fee-only practice


Question:

I'm in the process of trying to scale my fee-only/advice-only planning practice. With enough clients that I'm reaching significant overload, I'm looking into Canadian planning software that I can use for my clients - but not necessarily with my clients.

Answer:

If you use the professional version, you create and control the files and your clients do not have any access.

The collaborative version has more CRM functionality, such as exportable client lists, but not to the extent of exchanging information with billing and other CRM systems. For the collaborative, you can turn off the social media and referral components.

Friday, November 18, 2016

Update Wizard


Question:

One question on the “Update” feature.  I haven’t used it yet but just trying to figure out what happens when you use it.  So say you update all the financial information and any changes that might need to be done with assumptions, etc.,  does the program then use those numbers and the date (for example if I updated the financial info for Feb 28th, next week)  and project the year end results for this year based on 10 months of returns / expenses?

If you use the update feature I assume it changes the “date of financial information” to the current month.  If you just go in and make changes to the data then it will be using the previous date for calculations unless you manually change the “date of financial information”.

Basically the update feature seems to be an automated feature that adjusts the date for calculations and allows you to update the financial information.  If you need to do more than that then you can go into the other sections to do that.

So it will use 10 months of data for projection for year 1 when I use March as my start date for instance?

Answer:

What you said is correct. The Update Wizard groups all main and changing inputs in one location (mostly asset values), and updates the date of calculation automatically.

If you use the Detailed or Quick retirement calculations, you must change the date manually.

If you go through the Update Wizard, you can always go to the main program at any time and change the date back if you wish. It is not cast in stone. However, it's best to align the date with the date of the most current account balances.

The projection for year one is for 10 months, and all other years are twelve months, except the last. The last year, i.e. grimly called "year of death", is from January 1 to the birthday month.

Tuesday, November 15, 2016

Purchasing an annuity with RRSP


Question:

How do I purchase an annuity in 2020 with my my RRSP?

Answer:

There is a section in 'Registered Investments' on the 'Financial Information' page where you can select to purchase an annuity with the proceeds of your RRSP.

Thursday, November 10, 2016

Asset allocation and sources of income


Questions:

Looking at the Report I have a few questions:

Under Asset Allocation it states “The Investor Profile Questionnaire established that the following portfolio: Security might be the most …”  Do I assume that the RetireWare used a “Security” mix for my investments listed under Finances or will it use the “Selection of Rates in Economic Outlook?”  I deliberately left all RRSPs in the “Finances – Registered Investments – Market Value” as “Cash” so the projected growth would utilize a low return (2.25% as noted on the Assumptions and Disclosures).

Under the “Sources of Retirement Income” it has “yes” next to Personal Residence even though I indicated for both my wife and me “Never” under “Financial Information – Principal Residence – Sell Principal Residence.”  Are the income projections using the value of our personal residence or not?

Answer:

The calculations use the asset allocation basis selected on the 'Asset Mix for Projections' tab on the 'Options' page. You can select an asset allocation based on one of the profiles, the current asset mix, or your own custom allocation.

Since you selected 'Never', there will be no sale taking place. If you had selected a year for the sale but left the personal residence unselected in 'Sources of Retirement Income', then the funds would not be used for retirement.


Tuesday, November 8, 2016

Cash Flow Forecast


Question:

In the Cash Flow Forecast Detailed Data Table, there is a column of data called "Retirement Objective Net". From what I can see it includes the Post retirement expenses that I setup along with special expenses according to the parameters on the "retirement income target" tab.

However I can't seem to reconcile the data in that column against the budget, it is always higher. Can you tell me what data is included in the (net) retirement income objective column?

Answer:

The expenses you entered are in "today's dollars". So if it's payable in. say, 10 years, the annual expenses are increased by the rate of inflation applicable during that period. This is to ensure that your assets can pay for the expenses when they are incurred in the future. Look in the Help file, under Forecast Menu | Retirement Income Target |  Adjustments to Retirement Income. There is more information and an example about the impact of inflation.

Thursday, November 3, 2016

MonteCarlo calculations


Questions:

I have a dilemma. Hopefully you can help. My investment adviser recently provided me with a retirement plan using another product.

Income, future assets etc. were comparable to what I calculate using RetireWare.

However, for the same scenario, RetireWare is indicating a 100% probability of success. The competing software shows a 14% failure. The adviser recommends up to 10% failure as acceptable.

I assume that both programs should yield generally comparable Monte Carlo results?

Answer:

Please note that there is a setting in the Options page that counts small shortfalls as a success, so by setting the threshold to $0, the probability may go down.

Also note that Naviplan probably uses a different approach for their simulations. For example, they may use only one expected return and volatility, or maybe only fixed income and equities for asset classes. In any case, with such calculations resting heavily on assumptions and methodologies, one may view a 14% failure as equivalent to a 10% failure. Also, since this is the product of an advisor, there is an incentive to err on the conservative side since your success is at stake, so he may be extra careful to recommend higher spending.

One way to assess your plan is to look at the various results produced by the software. You have the odds of success, a deterministic projection based on your selected expected returns (or RetireWare's standard, which is fairly conservative). You also have a projection assuming you earn poor investment returns in the future. Then there is the risk analysis that "stress tests" the plan against the main risks under various economic conditions.

Our idea in making decisions when facing an uncertain future is to take a "holistic" approach. If you see that most indicators are favourable, then you probably are OK.

One last thought. If you find you experience lower than expected returns or higher expenses after a year or two, you are able to correct the course by monitoring your plan and adapting your spending going forward to set you back on solid footing to meet your expenses throughout retirement.

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