How I use I-ORP, and who shouldn't

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dknightd
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Re: How I use I-ORP, and who shouldn't

Post by dknightd »

Hayden wrote: Sun Jul 08, 2018 11:21 am

Why not just use ORP's Monte Carlo calculation?
I use it as well. But, as you have probably read, historical returns cannot predict future results. Which is part of the reason I would like to be able to run this every year.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

Hayden wrote: Sun Jul 08, 2018 11:21 am
smitcat wrote: Sun Jul 08, 2018 11:16 am
dknightd wrote: Sun Jul 08, 2018 11:10 am
smitcat wrote: Sun Jul 08, 2018 10:26 am

"I agree. I-ORP is a very useful tool. I find his default values for future returns to be a little optimistic for my tastes. But I suppose they are reasonable."
I like it as well but do not use the default values for our base case.
I curious what you use. My base is 5% stock returns, 2 dividends, 3 fixed. Income inflates 2% spending 3.
Changing any of those numbers can make a big difference! Which is part of why the tool is so useful.
It is a personal choice driven by how conservative one wants to be. We run a whole bunch of variables and then put them in a 'chart' which shows us the extremes and midpoints of those variables and combinations.
FWIW - our base case is 5% stock / 3 fixed / 2.5% inflation.
Why not just use ORP's Monte Carlo calculation?
Because we want to see where these combinations along with the resultant possibilities of taxable income end up:
- each earnings yield
- age of demise of one spouse
- affect on inheritance
That is why I mentioned it was a personal choice - running any other earning or combinations as well as a monte carlo may suit others just as well.
We run the base and favored potential outcomes on RPM for detail as our preference.
Tdubs
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Re: How I use I-ORP, and who shouldn't

Post by Tdubs »

I use 5 percent stocks, 0 on dividends, and 3 on fixed as a default.

Monte Carlo is useful to look at potential deviations from a model based on constant returns, but after that, you need to go back to the extended version for planning. At 8 years from retirement, ORPs value for me is in thinking about how to best allocate now across my pre-tax, Roth, and after-tax accounts. I really hadn't recognized the value of an after-tax till I started working with it.

I just wish there were display options that allow you to look at a few different runs side-by-side.
Tdubs
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Re: How I use I-ORP, and who shouldn't

Post by Tdubs »

dknightd wrote: Sun Jul 08, 2018 12:10 pm
Hayden wrote: Sun Jul 08, 2018 11:21 am

Why not just use ORP's Monte Carlo calculation?
I use it as well. But, as you have probably read, historical returns cannot predict future results. Which is part of the reason I would like to be able to run this every year.
Welch wrote up an article on folks who run ORP every year just as you suggest. "A Three Step Procedure for Sustainable Retirement Savings Withdrawals," in the Journal of Financial Planning.
dknightd
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Re: How I use I-ORP, and who shouldn't

Post by dknightd »

Tdubs wrote: Sun Jul 08, 2018 12:45 pm
dknightd wrote: Sun Jul 08, 2018 12:10 pm
Hayden wrote: Sun Jul 08, 2018 11:21 am

Why not just use ORP's Monte Carlo calculation?
I use it as well. But, as you have probably read, historical returns cannot predict future results. Which is part of the reason I would like to be able to run this every year.
Welch wrote up an article on folks who run ORP every year just as you suggest. "A Three Step Procedure for Sustainable Retirement Savings Withdrawals," in the Journal of Financial Planning.
I don't know James Welch. But he strikes me as a very smart person.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
BanquetBeer
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Re: How I use I-ORP, and who shouldn't

Post by BanquetBeer »

I’m far away from retirement and much further from SS... I do wonder the effects of using those early years to step up basis on taxable vs Roth conversions (or cashing 3 years taxable at once to do Roth conversion the next 2 years without other income). The expected returns would probably make this not appear favorable.

The problem I will have to look closer at in 10 years is the 0% vs 15% after tax brackets (that get eliminated if you have other income) vs ACA or Medicare penalties in my late 50s.

It seems saving 15% now on step up basis is more valuable than saving 5% on Roth conversions (unknown penalties though)
Panamapat
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Re: How I use I-ORP, and who shouldn't

Post by Panamapat »

curmudgeon wrote: Thu May 11, 2017 10:42 am
John Z wrote:
jebmke wrote: The challenge I found on i-orp Roth conversions is that the recommendations were heavily based on the assumed rates of return, in addition to tax efficiency. If you guessed a higher rate of return for your Roth, perhaps because of a longer-term investment horizon, i-orp will suggest high rates of conversion. While this may be logical from a linear programming perspective, it probably doesn't reflect the reality of real world asset allocations. The solution is to make sure you use the same expected return for all your account types when investigating Roth conversions.
After seeing some unexpected results on Roth conversions planning runs, and chatting with James Welch (I-Orp owner), I came to to understand that if you don't model the same % stock in each Tax Deferred, Roth and Taxable these could cause the model to choose hang onto the higher return stock holdings vs purely optimizing on tax efficiency.

To be honest, I'm still trying how best to use the tool for tax planning on Roth conversions and have much more to learn.

Pat
wander
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Re: How I use I-ORP, and who shouldn't

Post by wander »

I tried this calculator a few times, but the reports did not show anything about IRA2Roth. In the input parameters, it shows "IRA2Roth 0 Maximum IRA to Roth IRA Conversions." Does it mean IRA to Roth conversion is not applicable in my case?
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FiveK
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

wander wrote: Fri Aug 09, 2019 9:46 am I tried this calculator a few times, but the reports did not show anything about IRA2Roth. In the input parameters, it shows "IRA2Roth 0 Maximum IRA to Roth IRA Conversions." Does it mean IRA to Roth conversion is not applicable in my case?
Using https://i-orp.com/DI/extended.html, what option did you choose for "IRA to Roth IRA Conversions" (in the "Retirement Plans" box)?
wander
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Re: How I use I-ORP, and who shouldn't

Post by wander »

FiveK wrote: Fri Aug 09, 2019 10:05 am
wander wrote: Fri Aug 09, 2019 9:46 am I tried this calculator a few times, but the reports did not show anything about IRA2Roth. In the input parameters, it shows "IRA2Roth 0 Maximum IRA to Roth IRA Conversions." Does it mean IRA to Roth conversion is not applicable in my case?
Using https://i-orp.com/DI/extended.html, what option did you choose for "IRA to Roth IRA Conversions" (in the "Retirement Plans" box)?
Thanks FiveK. I got it. I used the calculator in the Home tab.
BigJoeAllen
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Re: How I use I-ORP, and who shouldn't

Post by BigJoeAllen »

I've noticed this thread has been dormant, but am wondering if folks are still using the i-ORP tool lately, and whether or not they have discovered other similar tools for optimal withdrawal strategies in retirement. This one seems very powerful to me I must say. (i-orp.com)....
drzzzzz
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Re: How I use I-ORP, and who shouldn't

Post by drzzzzz »

I have used i-orp and continue to play with it to see how different variables impact on its outcomes. I do find it aggressively often recommends Roth conversions (something that I am very interested in), but want to make sure the other parameters that I am inputting are not causing it to make that recommendation without some logic behind it.
curmudgeon
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Re: How I use I-ORP, and who shouldn't

Post by curmudgeon »

drzzzzz wrote: Sun Feb 21, 2021 7:32 pm I have used i-orp and continue to play with it to see how different variables impact on its outcomes. I do find it aggressively often recommends Roth conversions (something that I am very interested in), but want to make sure the other parameters that I am inputting are not causing it to make that recommendation without some logic behind it.
One point you have to be careful with in i-orp is that it uses your return estimates as part of the Roth conversion evaluation, which can mislead you if you don't account for it. If you are just looking at the Roth conversion decision, I prefer to run it with estimated investment returns all types of accounts set exactly the same.
drzzzzz
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Re: How I use I-ORP, and who shouldn't

Post by drzzzzz »

duplicate
Last edited by drzzzzz on Sun Feb 21, 2021 8:20 pm, edited 1 time in total.
drzzzzz
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Re: How I use I-ORP, and who shouldn't

Post by drzzzzz »

curmudgeon wrote: Sun Feb 21, 2021 7:52 pm
drzzzzz wrote: Sun Feb 21, 2021 7:32 pm I have used i-orp and continue to play with it to see how different variables impact on its outcomes. I do find it aggressively often recommends Roth conversions (something that I am very interested in), but want to make sure the other parameters that I am inputting are not causing it to make that recommendation without some logic behind it.
One point you have to be careful with in i-orp is that it uses your return estimates as part of the Roth conversion evaluation, which can mislead you if you don't account for it. If you are just looking at the Roth conversion decision, I prefer to run it with estimated investment returns all types of accounts set exactly the same.
Thanks I think I saw you or someone else post that elsewhere so I have done that. I have also noticed that the amounts of conversion also seems to be dependent on how large an estimate that I want to leave, but I am still playing around with that to see if I am correct.
N.Y.Cab
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Re: How I use I-ORP, and who shouldn't

Post by N.Y.Cab »

Yes, some combination of initial Roth balance and having some plan surplus amount will minimize Roth conversion recommendation.
Topic Author
LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

Post by BigJoeAllen » Sun Feb 21, 2021 6:14 pm

I've noticed this thread has been dormant, but am wondering if folks are still using the i-ORP tool lately, and whether or not they have discovered other similar tools for optimal withdrawal strategies in retirement. This one seems very powerful to me I must say. (i-orp.com)....
Yup! I use I-ORP and am still quite pleased with it.

When I was surveying tools, I knew I wanted tools that I could reliably re-run each year for a decade or more. I avoided tools with too many options under the hood, knowing I would be unlikely to remember too many settings and end up with stupid results in later years. That turned out to be prescient.

As life assumptions changed, I ended up having to recalculate things several times, and I was under some stress to figure out where I was with each change. I was very glad I'd screened my tool kit to KISS.

Still my goto tool.
The mightiest Oak is just a nut who stayed the course.
BigJoeAllen
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Re: How I use I-ORP, and who shouldn't

Post by BigJoeAllen »

Good to hear Lee.

I have been using the Extended version, it seems very powerful. I am still trying to figure out how to use the calculation ID they give you to paste into the program in order to return to it and rerun it i.e. save your inputs easily for later use...This is os far the only calculator I have found to optimize withdrawals in retirement.

Joe
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

LeeMKE wrote: Sun Feb 21, 2021 9:25 pm
Post by BigJoeAllen » Sun Feb 21, 2021 6:14 pm

I've noticed this thread has been dormant, but am wondering if folks are still using the i-ORP tool lately, and whether or not they have discovered other similar tools for optimal withdrawal strategies in retirement. This one seems very powerful to me I must say. (i-orp.com)....
Yup! I use I-ORP and am still quite pleased with it.

When I was surveying tools, I knew I wanted tools that I could reliably re-run each year for a decade or more. I avoided tools with too many options under the hood, knowing I would be unlikely to remember too many settings and end up with stupid results in later years. That turned out to be prescient.

As life assumptions changed, I ended up having to recalculate things several times, and I was under some stress to figure out where I was with each change. I was very glad I'd screened my tool kit to KISS.

Still my goto tool.
"I knew I wanted tools that I could reliably re-run each year for a decade or more
Still my goto tool."
We like it as well - what is your plan if/when the owner of IORP abandons it?
JohnFiscal
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Re: How I use I-ORP, and who shouldn't

Post by JohnFiscal »

BigJoeAllen wrote: Sun Feb 21, 2021 5:14 pm I've noticed this thread has been dormant, but am wondering if folks are still using the i-ORP tool lately, and whether or not they have discovered other similar tools for optimal withdrawal strategies in retirement. This one seems very powerful to me I must say. (i-orp.com)....
I have used i-ORP extensively, and independently investigated/audited the calculations extensively. I have high confidence in the program and I am especially pleased and impressed with the optimization of spendable funds over time (and this aspect is customizable to an extent, with the various spending options, or loading up certain years with anticipated extra spending). My concern is what happens to it once the developer moves on.

One poster mentioned running it every year; this is exactly what the developer told me he had intended, that retirees would come back each year to re-run the program to obtain updated results. So it's not necessarily that you run it once and follow that 'map' forever.

In my own personal experience, the results showed me two surprising conclusions that I would not have expected from investigating these issues in isolation, which shows the true value in considering all financial assets, etc, as a whole, not in parts. I found that (1) my spendable "income" each year varied only a smallish amount depending on what age I took Social Security (though my plan is to take at age 70 to maximize survivors benefit for my wife) and (2) that Roth conversions, even very large ones, again made little difference in yearly spendable "income".

It was true that by delaying SS and performing (large) Roth conversions the yearly spendable income was driven higher. But the increase was pretty nominal, on the order of $1,000 per year (about 1%). I considered it well within the reliable accuracy of all the inputs and calculations. So my opinion (for my own case) was that "yes, these two techniques do increase my spendable yearly amount, but it may not even be worth the while, so no harm done if I don't do either".
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TimeRunner
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Re: How I use I-ORP, and who shouldn't

Post by TimeRunner »

JohnFiscal wrote: Mon Feb 22, 2021 9:26 am My concern is what happens to it once the developer moves on.
Also it isn't clear if or how often the calculations are updated. The latest "ORP News" tab posting is from last July.
One cannot enlighten the unconscious. | "All I need are some tasty waves, a cool buzz, and I'm fine." -Jeff Spicoli
tibbitts
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Re: How I use I-ORP, and who shouldn't

Post by tibbitts »

smitcat wrote: Mon Feb 22, 2021 8:59 am We like it as well - what is your plan if/when the owner of IORP abandons it?
I appreciate i-orp, believe it's a very valuable tool and use it, but seriously: it isn't important enough to anyone (well except maybe the author) to require planning ahead for what you're going to do if it goes away.
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LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

We like it as well - what is your plan if/when the owner of IORP abandons it?
Good question. I am hoping someone teams up with James Walsh to continue maintaining it. I've suggested to NewRetirement that they get together with him to incorporate these tools. I'll be out of the woods in another few years. But I'd like to see this available for the folks right behind me.

For most, the difference is not life changing. But for me, and others unwittingly on the cusp of several tax issues, it changed my withdrawals significantly and as James says, I'm the reason he does this work. There are more of us, but the folks for whom this makes little difference think it makes little difference for everyone. That is incorrect.

I had already made IRA2Roth conversions that I thought would be sufficient. And my portfolio is well optimized. But as it turned out, I had an opportunity to do much more to improve my retirement because I used I-ORP early enough. So, I really push folks to use this in their 50s. If the difference is small, it is just a detail you can safely ignore. But when it isn't small, it is really important.
The mightiest Oak is just a nut who stayed the course.
tibbitts
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Re: How I use I-ORP, and who shouldn't

Post by tibbitts »

LeeMKE wrote: Mon Feb 22, 2021 10:41 am
We like it as well - what is your plan if/when the owner of IORP abandons it?
Good question. I am hoping someone teams up with James Walsh to continue maintaining it. I've suggested to NewRetirement that they get together with him to incorporate these tools. I'll be out of the woods in another few years. But I'd like to see this available for the folks right behind me.

For most, the difference is not life changing. But for me, and others unwittingly on the cusp of several tax issues, it changed my withdrawals significantly and as James says, I'm the reason he does this work. There are more of us, but the folks for whom this makes little difference think it makes little difference for everyone. That is incorrect.

I had already made IRA2Roth conversions that I thought would be sufficient. And my portfolio is well optimized. But as it turned out, I had an opportunity to do much more to improve my retirement because I used I-ORP early enough. So, I really push folks to use this in their 50s. If the difference is small, it is just a detail you can safely ignore. But when it isn't small, it is really important.
The advance planning part I completely agree with, except in my case I started about four years too late. While i-orp happened to be the primary tool that helped me realize my predicament (I tool was "unwittingly on the cusp of several tax issues", as you say), really the problem is simply not thinking about tax implications early enough. There are other tools that would have led me to the same conclusions. No, not down to the exact dollar amount i-orp identified (or even to within a few hundred thousand dollars, probably), but planning is just not that precise no matter what tool you use, due to all the assumptions involved. I hope i-orp is around for a long time to come too, but what really matters is pushing people to think about future taxes in retirement, not necessarily pushing them to use i-orp.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

LeeMKE wrote: Mon Feb 22, 2021 10:41 am
We like it as well - what is your plan if/when the owner of IORP abandons it?
Good question. I am hoping someone teams up with James Walsh to continue maintaining it. I've suggested to NewRetirement that they get together with him to incorporate these tools. I'll be out of the woods in another few years. But I'd like to see this available for the folks right behind me.

For most, the difference is not life changing. But for me, and others unwittingly on the cusp of several tax issues, it changed my withdrawals significantly and as James says, I'm the reason he does this work. There are more of us, but the folks for whom this makes little difference think it makes little difference for everyone. That is incorrect.

I had already made IRA2Roth conversions that I thought would be sufficient. And my portfolio is well optimized. But as it turned out, I had an opportunity to do much more to improve my retirement because I used I-ORP early enough. So, I really push folks to use this in their 50s. If the difference is small, it is just a detail you can safely ignore. But when it isn't small, it is really important.
IORP extended has been very valuable to us and the decisions it has helped us make represent significant dollars. Over a few years we have communicated with James in detail a few times with gliches and he has been great - I do not get the feel this will continue for many years (just a feeling).
We have also found the RPM to be very valuable and more detailed but its ability to narrow down multiple scenarios quickly is more limited. As each year goes by our needs to narrow down these scenarios decreases and our knowledge of the general tendencies on different scenarios increases so we do not need that feature as much.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

tibbitts wrote: Mon Feb 22, 2021 11:07 am
LeeMKE wrote: Mon Feb 22, 2021 10:41 am
We like it as well - what is your plan if/when the owner of IORP abandons it?
Good question. I am hoping someone teams up with James Walsh to continue maintaining it. I've suggested to NewRetirement that they get together with him to incorporate these tools. I'll be out of the woods in another few years. But I'd like to see this available for the folks right behind me.

For most, the difference is not life changing. But for me, and others unwittingly on the cusp of several tax issues, it changed my withdrawals significantly and as James says, I'm the reason he does this work. There are more of us, but the folks for whom this makes little difference think it makes little difference for everyone. That is incorrect.

I had already made IRA2Roth conversions that I thought would be sufficient. And my portfolio is well optimized. But as it turned out, I had an opportunity to do much more to improve my retirement because I used I-ORP early enough. So, I really push folks to use this in their 50s. If the difference is small, it is just a detail you can safely ignore. But when it isn't small, it is really important.
The advance planning part I completely agree with, except in my case I started about four years too late. While i-orp happened to be the primary tool that helped me realize my predicament (I tool was "unwittingly on the cusp of several tax issues", as you say), really the problem is simply not thinking about tax implications early enough. There are other tools that would have led me to the same conclusions. No, not down to the exact dollar amount i-orp identified (or even to within a few hundred thousand dollars, probably), but planning is just not that precise no matter what tool you use, due to all the assumptions involved. I hope i-orp is around for a long time to come too, but what really matters is pushing people to think about future taxes in retirement, not necessarily pushing them to use i-orp.
"I hope i-orp is around for a long time to come too, but what really matters is pushing people to think about future taxes in retirement, not necessarily pushing them to use i-orp."

The problem being is that folks do not want to calculate or confront these issues unless that cost is really in their face in black and white.
IORP can get that issue in your face with very little time spent and force the confrontation.
RPM can get some real great details and 'costs' in your face with a bunch more time and efforts.
Most folks will never put in the time to get a reasonable calculation of the future scenarios.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

LeeMKE wrote: Mon Feb 22, 2021 10:41 am
We like it as well - what is your plan if/when the owner of IORP abandons it?
Good question. I am hoping someone teams up with James Walsh to continue maintaining it. I've suggested to NewRetirement that they get together with him to incorporate these tools. I'll be out of the woods in another few years. But I'd like to see this available for the folks right behind me.

For most, the difference is not life changing. But for me, and others unwittingly on the cusp of several tax issues, it changed my withdrawals significantly and as James says, I'm the reason he does this work. There are more of us, but the folks for whom this makes little difference think it makes little difference for everyone. That is incorrect.

I had already made IRA2Roth conversions that I thought would be sufficient. And my portfolio is well optimized. But as it turned out, I had an opportunity to do much more to improve my retirement because I used I-ORP early enough. So, I really push folks to use this in their 50s. If the difference is small, it is just a detail you can safely ignore. But when it isn't small, it is really important.

Based on numerous threads I have seen here, I suspect IORP may also be costing some people more money in taxes than they otherwise might pay.

If one follows the "fixed income in tax-deferred" approach to asset location, IORP will almost certainly recommend IRA2Roth conversions that are much bigger, and more front loaded, than would be optimal.

It is a good tool, but needs to be used with caution.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Aelron
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Re: How I use I-ORP, and who shouldn't

Post by Aelron »

I think IORP is very good for getting a qualitative understanding of the need for roth conversions. However, I would not use it to determine the actual roth conversion amounts.

The main reason I wouldn't use it for roth conversion calculation is that it's not transparent (open source), so you can't easily audit it for correctness, and I'm not just saying this out of idle speculation. I was experimenting with scenarios trying to verify its tax calculation, and I discovered that if you enter 0% in the "After-tax Account Capital Gains Tax Rate" field, it uses some (potentially high) non-zero rate. So, if you really want "zero", you need to enter something small like 0.0001%.

Another reason that I wouldn't use it is because it does not model our marginal capital gains system nor does it model NIIT (net investment income tax). That means that it will in general be more aggressive on roth conversions than is optimal because it doesn't see the penalty of pushing capital gains into a higher marginal tax bracket.

I want to use the retiree portfolio model (RPM) to experiment with roth conversions, but I've so far failed twice due to the sheer amount of effort it takes to set it up. Maybe the third time is the charm!
gneeby
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Re: How I use I-ORP, and who shouldn't

Post by gneeby »

BigJoeAllen wrote: Sun Feb 21, 2021 5:14 pm I've noticed this thread has been dormant, but am wondering if folks are still using the i-ORP tool lately, and whether or not they have discovered other similar tools for optimal withdrawal strategies in retirement. This one seems very powerful to me I must say. (i-orp.com)....
According to Google Analytics i-ORP is getting three times the daily traffic it was getting a year ago; 150 unique visitors per day these days; small potatoes by Internet standards but the base is growing.
tibbitts
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Re: How I use I-ORP, and who shouldn't

Post by tibbitts »

marcopolo wrote: Mon Feb 22, 2021 11:54 am Based on numerous threads I have seen here, I suspect IORP may also be costing some people more money in taxes than they otherwise might pay.

If one follows the "fixed income in tax-deferred" approach to asset location, IORP will almost certainly recommend IRA2Roth conversions that are much bigger, and more front loaded, than would be optimal.

It is a good tool, but needs to be used with caution.
Taken literally it would have had me do hundreds of thousands of dollars in Roth conversions in 2020 at a 42% marginal rate. It's possible that that would turn out to be optimal, but also possible that it wouldn't.

Inclusion of NIIT would be a nice additional feature.

EDIT: incidentally, I'm pretty sure i-orp would have been more likely to have made optimal recommendations regarding the amount of Roth conversions if I had used it in the Spring of 2020 rather than the Fall.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

tibbitts wrote: Mon Feb 22, 2021 12:35 pm
marcopolo wrote: Mon Feb 22, 2021 11:54 am Based on numerous threads I have seen here, I suspect IORP may also be costing some people more money in taxes than they otherwise might pay.

If one follows the "fixed income in tax-deferred" approach to asset location, IORP will almost certainly recommend IRA2Roth conversions that are much bigger, and more front loaded, than would be optimal.

It is a good tool, but needs to be used with caution.
Taken literally it would have had me do hundreds of thousands of dollars in Roth conversions in 2020 at a 42% marginal rate. It's possible that that would turn out to be optimal, but also possible that it wouldn't.

Inclusion of NIIT would be a nice additional feature.
That is a very common outcome with I-ORP.

Our tIRA is about $1.5M, I-ORP, set up like our portfolio is actually structured, and using default return estimates, has us completely emptying our tIRA into Roth over a 7 year period, most of it in the first 4, paying exorbitant marginal rates.

Hard to see many scenarios where that would be a beneficial thing to do.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

tibbitts wrote: Mon Feb 22, 2021 12:35 pm
marcopolo wrote: Mon Feb 22, 2021 11:54 am Based on numerous threads I have seen here, I suspect IORP may also be costing some people more money in taxes than they otherwise might pay.

If one follows the "fixed income in tax-deferred" approach to asset location, IORP will almost certainly recommend IRA2Roth conversions that are much bigger, and more front loaded, than would be optimal.

It is a good tool, but needs to be used with caution.
Taken literally it would have had me do hundreds of thousands of dollars in Roth conversions in 2020 at a 42% marginal rate. It's possible that that would turn out to be optimal, but also possible that it wouldn't.

Inclusion of NIIT would be a nice additional feature.

EDIT: incidentally, I'm pretty sure i-orp would have been more likely to have made optimal recommendations regarding the amount of Roth conversions if I had used it in the Spring of 2020 rather than the Fall.
Not really, the main issue is more likely that I-ORP is pushing your fixed income assets in tIRA to Equities in Roth to capture the higher returns. Of course, that (increasing risk) is probably not one intended.

EDIT: I get what you mean now. Yes, if you had pulled the trigger on the conversion while markets were low, that might have helped!
Once in a while you get shown the light, in the strangest of places if you look at it right.
Exchme
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Re: How I use I-ORP, and who shouldn't

Post by Exchme »

I love the idea behind iORP of global as opposed to local optimization and giving a qualitative feel for strategy with minimum input.

One issue that bothers me is I don't think iORP is doing the 2 year look back on IRMAA tiers. It is recommending Roth conversions up to the top of the 24% bracket for the years we are 63 and 64 and then much less starting at age 65. But then it displays low IRMAA tiers at age 65 and 66, that wouldn't correspond to the age 63 and 64 conversions. Since it never asked for age 63 and 64 income (we might have been older), I don't think it can account for that. I didn't realize it was blind to NIIT as well. Of course, given the current law reverting to higher tax rates in 2026, the iORP answer may turn out to be right.
mtwhmemn
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Re: How I use I-ORP, and who shouldn't

Post by mtwhmemn »

What options are there out there for i-orp extended (or just something to use for comparison) that take the ACA into consideration for prospective early retirees?
yog
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Re: How I use I-ORP, and who shouldn't

Post by yog »

mtwhmemn wrote: Mon Feb 22, 2021 5:15 pm What options are there out there for i-orp extended (or just something to use for comparison) that take the ACA into consideration for prospective early retirees?
I-ORP Extended has an input field for an ACA income limit.
Here's the documentation on it:
https://i-orp.com/Plans/help/ORPHelp.html#ACAlid
Topic Author
LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

+1 yog
Unread post by yog » Mon Feb 22, 2021 6:29 pm

mtwhmemn wrote: ↑Mon Feb 22, 2021 6:15 pm
What options are there out there for i-orp extended (or just something to use for comparison) that take the ACA into consideration for prospective early retirees?
I-ORP Extended has an input field for an ACA income limit.
Here's the documentation on it:
https://i-orp.com/Plans/help/ORPHelp.html#ACAlid
And it works great. That's why we needed many years to complete our conversions as we were teetering on the edge of the ACA cliff.
The mightiest Oak is just a nut who stayed the course.
mtwhmemn
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Re: How I use I-ORP, and who shouldn't

Post by mtwhmemn »

yog wrote: Mon Feb 22, 2021 5:29 pm
mtwhmemn wrote: Mon Feb 22, 2021 5:15 pm What options are there out there for i-orp extended (or just something to use for comparison) that take the ACA into consideration for prospective early retirees?
I-ORP Extended has an input field for an ACA income limit.
Here's the documentation on it:
https://i-orp.com/Plans/help/ORPHelp.html#ACAlid
Sorry if I wasn't clear. I use use i-orp extended and use the ACA field. I was wondering if there was ANOTHER tool online that does what i-orp extended does including the ACA function to try out as a comparison to i-orp extended.

Thanks.
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LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

I use use i-orp extended and use the ACA field. I was wondering if there was ANOTHER tool online that does what i-orp extended does including the ACA function to try out as a comparison to i-orp extended.
Not that I've ever found.

Starting to see why I'm an evangelist?
The mightiest Oak is just a nut who stayed the course.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

LeeMKE wrote: Mon Feb 22, 2021 5:40 pm
I use use i-orp extended and use the ACA field. I was wondering if there was ANOTHER tool online that does what i-orp extended does including the ACA function to try out as a comparison to i-orp extended.
Not that I've ever found.

Starting to see why I'm an evangelist?
Since you are an evangelist, maybe you have found a solution to this.

Do you keep same asset allocation across all your accounts?

If not, how do you get around the issue of I-ORP pushing assets to accounts with highest expected returns?
Once in a while you get shown the light, in the strangest of places if you look at it right.
sandramjet
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Re: How I use I-ORP, and who shouldn't

Post by sandramjet »

marcopolo wrote: Mon Feb 22, 2021 5:50 pm Do you keep same asset allocation across all your accounts?

If not, how do you get around the issue of I-ORP pushing assets to accounts with highest expected returns?
So IMHO the biggest issue with the tool is people not realizing that this is an optimization tool. That means that it finds the optimal solution to the model represented and the constraints provided. Optimization tools frequently drive things to an extrema. If you KNOW for a fact that the returns in a given account WILL give the highest return, you should push assets to that account! If you believe (or know) that this is not an optimal solution, then it says that the MODEL or the CONSTRAINTS are not representing what would actually happen (for example, if it is missing some significant tax consequences). But, if the MODEL is truly representative, then you can be fairly certain that pushing the assets to the other accounts will satisfy the problem statement, which for I-ORP is to maximize the disposable income. It is not trying to minimize taxes paid, or maximize account values, etc.

Personally, I am in the camp that believes this is one of the best optimizing tools available, but (like any optimizer) you must be confident in the Model, the Inputs, and the Constraints if you want to believe the absolute results. I prefer to use these tools to try to find the sensitivity of the outcome to different choices I might choose.
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LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
The mightiest Oak is just a nut who stayed the course.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

sandramjet wrote: Mon Feb 22, 2021 6:17 pm
marcopolo wrote: Mon Feb 22, 2021 5:50 pm Do you keep same asset allocation across all your accounts?

If not, how do you get around the issue of I-ORP pushing assets to accounts with highest expected returns?
So IMHO the biggest issue with the tool is people not realizing that this is an optimization tool. That means that it finds the optimal solution to the model represented and the constraints provided. Optimization tools frequently drive things to an extrema. If you KNOW for a fact that the returns in a given account WILL give the highest return, you should push assets to that account! If you believe (or know) that this is not an optimal solution, then it says that the MODEL or the CONSTRAINTS are not representing what would actually happen (for example, if it is missing some significant tax consequences). But, if the MODEL is truly representative, then you can be fairly certain that pushing the assets to the other accounts will satisfy the problem statement, which for I-ORP is to maximize the disposable income. It is not trying to minimize taxes paid, or maximize account values, etc.

Personally, I am in the camp that believes this is one of the best optimizing tools available, but (like any optimizer) you must be confident in the Model, the Inputs, and the Constraints if you want to believe the absolute results. I prefer to use these tools to try to find the sensitivity of the outcome to different choices I might choose.
Yes. It is optimizing disposable income. That is what most people want as well. But, it is doing so without consider risk. That is not what most people want to do. That would be like saying 100% equities is the optimal asset allocation because it has the highest expected returns.

It is common that people keep equities in Roth, FI in tIRA, and some combination in taxable to maintain their desired asset allocation. When moving assets from tIRA to Roth via conversions, most people want to maintain their asset allocation, and will do so by either rebalancing in taxable (perhaps simply through withdrawals), or letting some fixed income populate their Roth accounts.

In this scenario, I-ORP produces the highest disposable income by quickly moving all of the fixed income assets in tIRA into equities in Roth. Much of the higher disposable income comes from the change in asset allocation, rather than from the move to the Roth. I don't think that is what most people are trying to accomplish. The example I gave before for our situation has us converting $1.5M in a few short years, paying 22-24% tax on most of it. Then having little or no taxes due later in life (wasting 12% tax space). It is only optimal in maximizing disposable income due to going to 100% equities. I suspect some people using/touting I-ORP suggested Roth conversions do not realize this is what is happening under the covers.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

LeeMKE wrote: Mon Feb 22, 2021 6:24 pm
Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
But, this only mitigates the problem somewhat. This will have your tIRA falsely grow much faster than it really would, and will result in larger Roth conversions than necessary to get RMDs in the optimal range.
Once in a while you get shown the light, in the strangest of places if you look at it right.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

marcopolo wrote: Mon Feb 22, 2021 6:37 pm
LeeMKE wrote: Mon Feb 22, 2021 6:24 pm
Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
But, this only mitigates the problem somewhat. This will have your tIRA falsely grow much faster than it really would, and will result in larger Roth conversions than necessary to get RMDs in the optimal range.
That is true and also why we use the RPM to evaluate any likely scenarios in much greater detail.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

smitcat wrote: Mon Feb 22, 2021 8:13 pm
marcopolo wrote: Mon Feb 22, 2021 6:37 pm
LeeMKE wrote: Mon Feb 22, 2021 6:24 pm
Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
But, this only mitigates the problem somewhat. This will have your tIRA falsely grow much faster than it really would, and will result in larger Roth conversions than necessary to get RMDs in the optimal range.
That is true and also why we use the RPM to evaluate any likely scenarios in much greater detail.

That is what i ended up doing as well. I built a muti-year spreadsheet that uses RPM to evaluate each individual year.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
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Re: How I use I-ORP, and who shouldn't

Post by marcopolo »

LeeMKE wrote: Mon Feb 22, 2021 6:24 pm
Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
The other thing i would point out is that it is great that you have figured out a kind-of work around, that is really not intuitive.
But, we do get numerous relatively new posters asking about how to evaluate Roth conversions, and they are often told to use I-ORP by such "evangelists", without any mention of the dangerously aggressive (it's not just a tilt) Roth conversions that can result if one does not kludge the input data in such a non-intuitive way. How is a novice who is told "use I-ORP, it is a great tool" supposed to know they need to do this to get even close to reasonable results?

I think I-ORP is a very good tool to evaluate some trade-offs, but do not find it very useful, and potentially costly, as a way to evaluate Roth conversions.
Once in a while you get shown the light, in the strangest of places if you look at it right.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

marcopolo wrote: Mon Feb 22, 2021 8:54 pm
smitcat wrote: Mon Feb 22, 2021 8:13 pm
marcopolo wrote: Mon Feb 22, 2021 6:37 pm
LeeMKE wrote: Mon Feb 22, 2021 6:24 pm
Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
But, this only mitigates the problem somewhat. This will have your tIRA falsely grow much faster than it really would, and will result in larger Roth conversions than necessary to get RMDs in the optimal range.
That is true and also why we use the RPM to evaluate any likely scenarios in much greater detail.

That is what i ended up doing as well. I built a muti-year spreadsheet that uses RPM to evaluate each individual year.
Yes - that works well. We also evaluated varios scenarios for a number for more likely possible future outcomes. Our Roth conversions outcome would also be affected by things like: portfolio performance, SS election age, potential SS redux, amount of draw in retirement, age of desmise of one spouse, and tax rates for heirs.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

marcopolo wrote: Mon Feb 22, 2021 9:01 pm
LeeMKE wrote: Mon Feb 22, 2021 6:24 pm
Do you keep same asset allocation across all your accounts?
Yup. I put the same AA in Roth as IRA, to avoid having I-ORP tilt to greater conversions. In real life I am completely equities in Roth and all my bonds are in tIRA. This tweak is necessary to know that my conversions are focused on the tax balancing, rather than brut force tax minimization.
The other thing i would point out is that it is great that you have figured out a kind-of work around, that is really not intuitive.
But, we do get numerous relatively new posters asking about how to evaluate Roth conversions, and they are often told to use I-ORP by such "evangelists", without any mention of the dangerously aggressive (it's not just a tilt) Roth conversions that can result if one does not kludge the input data in such a non-intuitive way. How is a novice who is told "use I-ORP, it is a great tool" supposed to know they need to do this to get even close to reasonable results?

I think I-ORP is a very good tool to evaluate some trade-offs, but do not find it very useful, and potentially costly, as a way to evaluate Roth conversions.
There are other issues with IORP as well as any other tool we use - you really want to understand any tool that you use for these types of evaluations.
IORP has some issues with tax calculations in certain instances, selection of drawdown patterns to name a couple.
gneeby
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Re: How I use I-ORP, and who shouldn't

Post by gneeby »

marcopolo wrote: Mon Feb 22, 2021 5:50 pm
LeeMKE wrote: Mon Feb 22, 2021 5:40 pm
I use use i-orp extended and use the ACA field. I was wondering if there was ANOTHER tool online that does what i-orp extended does including the ACA function to try out as a comparison to i-orp extended.
Not that I've ever found.

Starting to see why I'm an evangelist?
Since you are an evangelist, maybe you have found a solution to this.

Do you keep same asset allocation across all your accounts?

If not, how do you get around the issue of I-ORP pushing assets to accounts with highest expected returns?
It turns out that experimenting with ORP using fixed asset allocation yields up a bunch of infeasible models and no useful results. ORP needs to move funds between accounts to preposition assets prior to withdrawal to gain maximum tax advantage. Fixing asset allocation takes away that feature.
yog
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Re: How I use I-ORP, and who shouldn't

Post by yog »

gneeby wrote: Sat Feb 27, 2021 1:51 pm
marcopolo wrote: Mon Feb 22, 2021 5:50 pm
LeeMKE wrote: Mon Feb 22, 2021 5:40 pm
I use use i-orp extended and use the ACA field. I was wondering if there was ANOTHER tool online that does what i-orp extended does including the ACA function to try out as a comparison to i-orp extended.
Not that I've ever found.

Starting to see why I'm an evangelist?
Since you are an evangelist, maybe you have found a solution to this.

Do you keep same asset allocation across all your accounts?

If not, how do you get around the issue of I-ORP pushing assets to accounts with highest expected returns?
It turns out that experimenting with ORP using fixed asset allocation yields up a bunch of infeasible models and no useful results. ORP needs to move funds between accounts to preposition assets prior to withdrawal to gain maximum tax advantage. Fixing asset allocation takes away that feature.
It's not the AA as much as the balances which cause you to see no benefit from converting. This is true for 99% of the population.

All other things equal, if you want to see the maximum you should ever convert based on your current balances, just change all your AA's to 100% equities. A more conservative approach is to model 50/50 in all spaces. If it still looks like you don't see a lot of benefit, you are not alone.
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