Monte Carlo and calculating income tax

Question:

I am currently using Naviplan standard and considering going to the extended version.

I am looking for a way to incorporate client investments into their financial plan showing the ups and downs and how this volatility is affecting their plans. Can you plan do this or can you customize it to do this? As well, I am a little confused by the statement “simulates a tax return” described on your website.

Answer:

The Monte Carlo Edition of RetireWare does capital market simulations based on volatility of the person's investment portfolio. The outcome is a probability of success. So, while there may be significant volatility, if expected returns are achieved, it will provide comfort to the client showing the degree of certainty of their financial security.

Read the information on the following page: http://www.retireware.com/simulations.aspx

The software simulates a tax return, so each future year of the projection of assets and future income, income tax calculations are based on actual tax rules. Other products usually use a single "marginal tax rate" for simplicity. By using accurate tax calculations, the numbers are more robust and reliable.

Most advisors buy a single copy and create printed or PDF reports or summarize them within their own reports.

Please remember that you can purchase a copy and if it does not suit your needs, you can get a refund within 30 days.

Upgrading to Monte Carlo version

Question:

Can you tell me if you purchase the standard version now and later wish to purchase Monte Carlo can you do so and if so at what cost?

Answer:

You can upgrade for the difference in cost between the two versions. This is the upgrade page:

http://www.retireware.com/purchase.aspx

Monte Carlo Simulation - withdrawal amounts in retirement

Question:

I have done extensive research on the Internet regarding using Monte Carlo simulators for retirement planning. From what I have read, it is more important to withdraw a fixed percentage (i.e 4%) of your total portfolio each year rather than a dollar amount. For example a $1 million porfolio you would withdraw 4% or $40,000 per year and let the rest grow. My question is does your Monte Carlo simulation allow you to enter withdrawls amounts as a percentage of the portfolio as opposed to just a dollar amount. Some programs will event tell you how much you can withdraw at a given level of probability. In other words, you have a 95% probability of not running out of money for xxx years if you withdraw xxx amount per year. How does your program deal with these issues.

Answer:

With RetireWare, you build a plan by choosing a retirement income objective, and the income need is met using Government and company pensions, other income, and investment assets, each with their withdrawal rules and tax treatment. You run your plan on a deterministic basis (that is, assuming no variations in expected rates of return). Withdrawals from investment assets depend on what you need to close the gap between the retirement income objective and income payable each particular year. This amount varies as some are indexed, others come in payment only from a certain age and some cease being paid at a particular point in the future (for example, if you work on a part-time basis for a few years after retirement).

This retirement plan that you create with all this level of detail is also "stressed-test" using a Monte Carlo simulation, where the expected rate of return for each asset class varies randomly in accordance with its volatility.

Monte Carlo is integrated with the actual plan and is not merely a flat withdrawal percentage each year. We have seen articles showing a safe withdrawal rate using Monte Carlo simulation as an analysis tool, but they usually used a simplified model. Our model takes into account various types of income and various types of investment accounts (non-registered, RRSP, locked-in assets, etc.).

So you can try different retirement income objectives and see the probability of success for each. Then you can decide the income level you feel most comfortable with.

Investment property

Question:

On taxes; how does the software handle capital gains on other property. I have added a property, that is not my principle residence, but I do not see any related taxes n the year of disposition.

Answer:

1. Select in 'Other Assets' the percentage that will be used as a source of retirement income
2. In 'Sources of Income', select 'Other Property' as a source of retirement income.

If you use 100%, the tax should show in the year of disposition. If you select less than 100%, a proportionate tax is allocated to non-registered investments and sown in 'Accumulations', and the remainder is accounted for in the last column called 'Other Assets'.

CPP pension

Question:

I am having difficulty getting RetireWare to show my expected CPP pension income. I am currently semi-retired, age 56. I have no full-time employment earnings and have checked that box in RetireWare's Financial Information - Earnings section. Nor am I currently in receipt of any CPP pension, so I can't enter any in RetireWare's Government Pension section. Is there any other place I should enter my expected CPP income so that RetireWare will recognize it?

Answer:

If you are semi-retired, select 'Already Retired' in Financial Information as you did, but enter an amount of earnings. This amount will be used to estimate the CPP. If you are working part-time, you can put an amount in 'Sources of Income'.

Software installed on two computers

Question:

If I purchase retireware can I download to both my desktop and laptop?

Answer:

You can have installed on your desktop and laptop as long as no two people are using it concurrently.

Download and run the installation on each computer. This is the download page:

http://www.retireware.com/downloads.aspx

Reinstalling RetireWare on a new computer

Question:

I recently purchased a new computer. My old computer has the RetireWare program downloaded on it as well as the current file I was working on. The software was downloaded over the internet.

How do I install the software on my new computer? Also, what do you think is the best way to transfer the file I was working with?

Answer:

Download the setup file from the following page:

http://www.retireware.com/downloads.asp

Unless you specified a different location for your files, they should be in the following directory, which you can access using Windows Explorer:

C:\Program Files\RetireWare\Files

Simply copy the files over to the same location on the new computer.

Saving files for two spouses

Question:

I get to the information for spouse 2 (my husband), even though I have entered all the info and the file is in the file list. When I open spouse 1 (me) and click on Data Summary, I get my info. When I click on spouse 2, I get my info again. But when I try to open my husband’s file into spouse 2, I get the following message:

"A file in the spouse workspace is already opened. Please save or discard your file before opening the file for the spouse."

I have tried every way I can think of to get the Greg file to open, with no success.

Answer:

Here are a few tips:

- There is an interactive demo on the following page that explains saving files. It takes only a few minutes. Go to the following page:

http://www.retireware.com/tutorials.aspx

- You name files the same way as any Windows file. There are two files, one for each spouse. You can't save both spouses in one file.

Here is more information on opening files:

- Open the software.

- Then open your first file, go to General Information. If you have written a name in "Spouse File Name", remove it and click ok. Now you have a file open in the "Spouse 1" workspace.

- Click the "Spouse 2" icon, open your spouse's file, do the same thing to the spouse file name. Now your spouse's file is open in the "Spouse 2" workspace".

- The "spouse file name" is an optional field, and sometimes makes it difficult to users.

- You may have saved Greg's data in your 'Linda' file, or Linda's in Greg's. Verify which is the correct one.

Run-time error '339'

Question:

About an hour ago I reported the above error. The same error message was flashed during my use of the step by step wizard. Please respond rapidly to my request. Thank you

Answer:

From your description and the one in the last message, it seems that the software installation did not properly install the charting component. The only suggestion I have is to completely uninstall the software using the Add/Remove software utility in Windows. When completed, reboot your computer and re-install the software.

Open Asset Mix for projections to see if you get the error message. If you don't you should be OK. The results display is all charts, so if it works, the installation has been successful and the software will run properly.

We should mention that no user ever reported this error before and it may be caused by other software using the same component. If we cannot resolve it, we will refund your purchase.

Tax deductions for investment loans

Question:

Does your software take into consideration the tax deductibility of investment loans (i.e. do we have the option to make a loan deductible or non-deductible)?

Answer:

No it does not. This is a refinement we plan to bring to version 3.

On a related note, we plan to introduce in the future a Web-based application for advisors to illustrate investment loan strategies, such as the one referred to by many as the "Smith Manoeuvre".

More on pensions

Questions and Answers:

1. I have a widow with a child receiving a CPP survivor's benefit of about $700 a month till retirement but I cannot find anywhere to enter this data.

Answer: if you want to include it in the spouse’s budget, enter it as ‘Other Income’ in ‘Sources of Income’. You can put the current year for starting year, and the year it ends as the ‘Ending Year’.

2. If client takes early pension with bridging, the system simply wants to know the annual amount of bridging to 65, not the amount of pension paid annually to 65. Correct?

Answer: Yes. If there are accruals make it a current defined benefit plan, if not, make it a ‘prior defined benefit plan’.

3. Is there any way to show client is a widow? I am showing now as married but spouse with no income.

Answer: Just do a single calculation. In ‘General Information’ uncheck ‘Do calculations for Both Spouses’.

4. I finished the client calculations then saved it, but into 'My Documents'. It is there but I cannot open it again. Should I have saved the file under ‘Files’, which is the default?

Answer: You can only open files from within RetireWare, but can save them in any directory you wish. On the File menu, click Open and browse to ‘My Documents’ and you will see your file.

5. How do I get into the client file to revise/edit the information and to experiment?

Answer: Open the file and do ‘save as’ if you wish to try a few different settings. Or open the file, make changes and if you’re not satisfied don’t save your changes.

6. I cannot get the 'inflation-adjusted' button to work. Nothing is changing when I am viewing the income forecast.

Answer: It is a toggle button. Close any results window, press the button so it’s in the ‘on’ position, then open the window and the results will show on an inflation-adjusted basis.

7. I have a lot of 'non-registered' savings accruing in retirement due to excess income. Is there a way to project how much income will be generated from the assets rather than having all this surplus building up?

Answer: You must increase the retirement income objective in ‘Retirement Income Target’, otherwise, the excess is saved.

Changes to existing file and resaving

Question:

I am trying to make changes to an existing file but when I go to save the file again (with changes), the changes do not seem to get saved. Please advise.

Answer:

Please review the video called "Financial plan for both spouses and saving files" on the following page:

http://www.retireware.com/tutorials.aspx

It covers saving and retrieving files and takes only a few minutes to view.

Trial version

Question:

I have recently been looking at FP Solutions and Naviplan. They both have limited day trial versions. While they are quite good, I somehow cannot justify the considerable cost for my needs, not to mention that they can be quite complex at certain times.

Do you have a limited number of days trial or demo version of your software?

I have just downloaded and printed your manual. So far I like what I see. This may be the product for me.

Answer:

We don't have a trial version. However, we have a 30 days money back guarantee. If you're not completely satisfied we will provide a full refund.