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

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chuckb84
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Re: How I use I-ORP, and who shouldn't

Post by chuckb84 »

whaleknives wrote: Thu May 11, 2017 12:37 pm
LeeMKE wrote:. . . Another thing I like about I-ORP is that help is available. My first attempt gave me odd results, and I couldn't figure out what I was doing wrong. By following the instructions, you can get the inventor? (what exactly do you call a model owner?) to look at your work and give you feedback. Once I got that help, the results have been great for me. . . I make a donation every year because this model is valuable to me. (I also didn't hesitate to buy a copy of Living Off Your Money when some Bogleheads fixated on the insult of paying for the book.) :wink:
:thumbsup Yes, James S. Welch, Jr. responds to emails!
He does indeed! He's responded to bug reports I sent in, and the new toggle "Social Security will continue full benefits?" is in response to a request that I made to put that in. Well, I was ONE of the people who requested that. :D

Two points about i-orp, one general and one specific: I have used i-orp extensively to make small "delta" comparisons, i.e., most of our retirement plan is fixed at this point, but i-orp is nice to use to make comparisons of small changes in the planning. Any tool of this point is more accurate for such small variations and i-orp works well for this.

Second, the OP makes the point about modeling the tradeoff in taking/delaying SS vs. drawing down your own money while you wait to start SS. i-orp models total spending in retirement and convinced me that while delaying SS clearly gives you more money from SS, the effect on the total is actually very small, and certainly within the uncertainty limits of the modeling and unknowable future events.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

chuckb84 wrote: Fri Aug 18, 2017 7:49 am
whaleknives wrote: Thu May 11, 2017 12:37 pm
LeeMKE wrote:. . . Another thing I like about I-ORP is that help is available. My first attempt gave me odd results, and I couldn't figure out what I was doing wrong. By following the instructions, you can get the inventor? (what exactly do you call a model owner?) to look at your work and give you feedback. Once I got that help, the results have been great for me. . . I make a donation every year because this model is valuable to me. (I also didn't hesitate to buy a copy of Living Off Your Money when some Bogleheads fixated on the insult of paying for the book.) :wink:
:thumbsup Yes, James S. Welch, Jr. responds to emails!
He does indeed! He's responded to bug reports I sent in, and the new toggle "Social Security will continue full benefits?" is in response to a request that I made to put that in. Well, I was ONE of the people who requested that. :D

Two points about i-orp, one general and one specific: I have used i-orp extensively to make small "delta" comparisons, i.e., most of our retirement plan is fixed at this point, but i-orp is nice to use to make comparisons of small changes in the planning. Any tool of this point is more accurate for such small variations and i-orp works well for this.

Second, the OP makes the point about modeling the tradeoff in taking/delaying SS vs. drawing down your own money while you wait to start SS. i-orp models total spending in retirement and convinced me that while delaying SS clearly gives you more money from SS, the effect on the total is actually very small, and certainly within the uncertainty limits of the modeling and unknowable future events.
This part....
"Second, the OP makes the point about modeling the tradeoff in taking/delaying SS vs. drawing down your own money while you wait to start SS. i-orp models total spending in retirement and convinced me that while delaying SS clearly gives you more money from SS, the effect on the total is actually very small, and certainly within the uncertainty limits of the modeling and unknowable future events."
Depending upon your personal situation with SS this varies widely.

One or both spouses might qualify for SS, they may be of similar or not ages, one or both might elect to receive SS at varying ages, and one or both might select a 'plan end' age which will vary this output tremendously.
With your inputs IORP apparently yielded very similar results, but changes that apply for other folks or even varying inputs for yourself will yield differing results.
We compare IORP with Bigfoots really great spreadsheet and they both have great things about them and can easily help us in planning.
Thankful to this site and all of you posters that have allowed us to 'learn' these lessons.....
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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

smitcat wrote: Fri Aug 18, 2017 8:02 am i-orp models total spending in retirement and convinced me that while delaying SS clearly gives you more money from SS, the effect on the total is actually very small, and certainly within the uncertainty limits of the modeling and unknowable future events."
Depending upon your personal situation with SS this varies widely.
I previously used SS Analyze from Bedrock Capital, and it showed best strategy for us was for us to take SS at 70 (me)/ 69 (DW).

i-ORP suggested 67/66.

When I manually plugged SS ages 70/69 numbers into i-ORP, it projected larger income. Not sure why i-ORP would recommend less income over more. Still playing with it and learning, so am not ready to email the author yet.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

munemaker wrote: Fri Aug 18, 2017 8:54 am
smitcat wrote: Fri Aug 18, 2017 8:02 am i-orp models total spending in retirement and convinced me that while delaying SS clearly gives you more money from SS, the effect on the total is actually very small, and certainly within the uncertainty limits of the modeling and unknowable future events."
Depending upon your personal situation with SS this varies widely.
I previously used SS Analyze from Bedrock Capital, and it showed best strategy for us was for us to take SS at 70 (me)/ 69 (DW).

i-ORP suggested 67/66.

When I manually plugged SS ages 70/69 numbers into i-ORP, it projected larger income. Not sure why i-ORP would recommend less income over more. Still playing with it and learning, so am not ready to email the author yet.

I also used the Bedrock tool but it is also very sensitive to inputs and it does not account far taxes only for SS payout. Depending upon where you set the Bedrock variables (discount rate, inflation rate , and your ages) it will spit out very different results.
Please Note - IOPR also 'automatically' lowers SS income in future years and we are not able to adjust that now (wish we could).
So currently when SS is forecasted to run down in funds the IORP adjust your SS income down from those years forward.

Taxes often become the bigger variable once you have settled down the other choices.
IORP is attempting to maximize what you can keep and Bedrock is attempting to maximize what you get - two different goals in many cases.
I have found that Bigfoots spreadsheet to be very good and very helpful but it requires a bunch of time for inputs and understanding.
Once we had our inputs 'correct' for both IORP and Bigfoots they tend to agree on the outputs for the most part.
For quite a while we could not get them to agree - but it turns out the largest problem by far was us not understanding how to make the inputs correctly for us.
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Peter Foley
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Re: How I use I-ORP, and who shouldn't

Post by Peter Foley »

I too have run a number of scenarios in i-orp. Many scenarios were options I might consider with regard to our personal situation. Then I ran a couple abstract options with assets arrayed differently. (All of this was in advance of a presentation regarding Retirement Calculators by a member of the steering team at a MN Bogleheads Meeting.)

My conclusion was that if one has a very high ratio of tax exempt assets to taxable and Roth assets, the proposed Roth conversions were too aggressive.
If, however, the ratio of tax exempt to taxable and Roth were more balanced, let's say 50/50 or so, the result provided good guidance.

I also used the Retiree Portfolio Model, an excel spreadsheet developed by Bigfoot. I have a preference for this calculator for my situation.


Edit: poor word choice. It should be tax deferred assets not tax exempt assets.
Last edited by Peter Foley on Mon Sep 06, 2021 9:44 am, edited 1 time in total.
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munemaker
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Re: How I use I-ORP, and who shouldn't

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

Post by munemaker »

Peter Foley wrote: Fri Aug 18, 2017 10:28 am
My conclusion was that if one has a very high ratio of tax exempt assets to taxable and Roth assets, the proposed Roth conversions were too aggressive.
Thanks for the comments. Please define "too aggressive." Does that mean not maximizing your income or estate, or just beyond your personal comfort level. I ask because the program notes caution that novices may not be comfortable with the recommended level of Roth conversions.
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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

smitcat wrote: Fri Aug 18, 2017 9:50 am
Please Note - IOPR also 'automatically' lowers SS income in future years and we are not able to adjust that now (wish we could).
So currently when SS is forecasted to run down in funds the IORP adjust your SS income down from those years forward.

Taxes often become the bigger variable once you have settled down the other choices.
IORP is attempting to maximize what you can keep and Bedrock is attempting to maximize what you get - two different goals in many cases.
I have found that Bigfoots spreadsheet to be very good and very helpful but it requires a bunch of time for inputs and understanding.
Once we had our inputs 'correct' for both IORP and Bigfoots they tend to agree on the outputs for the most part.
For quite a while we could not get them to agree - but it turns out the largest problem by far was us not understanding how to make the inputs correctly for us.
Thanks for the response.

I understand that iORP is attempting to maximize what you can keep, but it does not seem to do that in the case of my SS. I actually "get to keep" more when I take SS at 70 rather than 67, as iORP suggests. So I am puzzled at that. There is probably a reason.

There is a checkbox in iORP if you don't want it to adjust for SS running out of money. Personally, I don't get the adjustment anyway. If the fund would actually run out of money and congress does not adjust, what would likely happen is recipients at the very bottom would actually get more, those close to the bottom would not be affected and those at the top would take cuts much larger than 23% or whatever number is being quoted. It would not be level across all recipients. That's how the government works.

Do you have a link to BIGFOOT48's spreadsheet? I would like to try it out.

One thing I notice about financial calculators in general is people just plug in numbers without understanding the methodology or limitations, and then complain about the results if they don't like them.
smitcat
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

munemaker wrote: Fri Aug 18, 2017 11:21 am
smitcat wrote: Fri Aug 18, 2017 9:50 am
Please Note - IOPR also 'automatically' lowers SS income in future years and we are not able to adjust that now (wish we could).
So currently when SS is forecasted to run down in funds the IORP adjust your SS income down from those years forward.

Taxes often become the bigger variable once you have settled down the other choices.
IORP is attempting to maximize what you can keep and Bedrock is attempting to maximize what you get - two different goals in many cases.
I have found that Bigfoots spreadsheet to be very good and very helpful but it requires a bunch of time for inputs and understanding.
Once we had our inputs 'correct' for both IORP and Bigfoots they tend to agree on the outputs for the most part.
For quite a while we could not get them to agree - but it turns out the largest problem by far was us not understanding how to make the inputs correctly for us.
Thanks for the response.

I understand that iORP is attempting to maximize what you can keep, but it does not seem to do that in the case of my SS. I actually "get to keep" more when I take SS at 70 rather than 67, as iORP suggests. So I am puzzled at that. There is probably a reason.

There is a checkbox in iORP if you don't want it to adjust for SS running out of money. Personally, I don't get the adjustment anyway. If the fund would actually run out of money and congress does not adjust, what would likely happen is recipients at the very bottom would actually get more, those close to the bottom would not be affected and those at the top would take cuts much larger than 23% or whatever number is being quoted. It would not be level across all recipients. That's how the government works.

Do you have a link to BIGFOOT48's spreadsheet? I would like to try it out.

One thing I notice about financial calculators in general is people just plug in numbers without understanding the methodology or limitations, and then complain about the results if they don't like them.

This is the link to the RPM from Bigfoot (thank you Bigfoot)
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

"One thing I notice about financial calculators in general is people just plug in numbers without understanding the methodology or limitations, and then complain about the results if they don't like them."
I could not agree more as we were in that exact case not too long ago. We thought the best calculators were the ones that required the least inputs and that an answer that works for you would be accurate for us - very dangerous to know partial information I think.

"There is a checkbox in iORP if you don't want it to adjust for SS running out of money."
Thank you - we will us that now as well.

"Personally, I don't get the adjustment anyway. If the fund would actually run out of money and congress does not adjust, what would likely happen is recipients at the very bottom would actually get more, those close to the bottom would not be affected and those at the top would take cuts much larger than 23% or whatever number is being quoted. It would not be level across all recipients. That's how the government works."

Well - who knows? There are a bunch of supposed 'fixes' all of which can work or can be combined into more than one solution. Other countries facing these issues have tended to just raise the age for benefits over time similar to how they 'adjusted' SS in the past. But we do not know so I am just trying to keep my calculators comparing the same inputs over time.
Once you start to vary more than one item you can get pretty misled fairly quickly.
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FiveK
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

munemaker wrote: Fri Aug 18, 2017 11:17 am Thanks for the comments. Please define "too aggressive." Does that mean not maximizing your income or estate, or just beyond your personal comfort level. I ask because the program notes caution that novices may not be comfortable with the recommended level of Roth conversions.
Others may have a different concern, but my discomfort stems from the perception that i-orp does not do correct tax calculations and the marginal rates on those high conversions are actually much more punitive than i-orp understands. If you can shed light on this, that would be great.
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Re: How I use I-ORP, and who shouldn't

Post by smitcat »

FiveK wrote: Fri Aug 18, 2017 11:35 am
munemaker wrote: Fri Aug 18, 2017 11:17 am Thanks for the comments. Please define "too aggressive." Does that mean not maximizing your income or estate, or just beyond your personal comfort level. I ask because the program notes caution that novices may not be comfortable with the recommended level of Roth conversions.
Others may have a different concern, but my discomfort stems from the perception that i-orp does not do correct tax calculations and the marginal rates on those high conversions are actually much more punitive than i-orp understands. If you can shed light on this, that would be great.

I cannot speak for others but when we check the IOPR calcs with tax software we are really close. That results in us seeing Roth conversions as being a good thing in a few ways even at higher rates in our case.
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FiveK
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

smitcat wrote: Fri Aug 18, 2017 11:53 am I cannot speak for others but when we check the IOPR calcs with tax software we are really close. That results in us seeing Roth conversions as being a good thing in a few ways even at higher rates in our case.
Well done to do a double check! In that case you are likely fine.

I'd be concerned about cases such as viewtopic.php?f=10&t=218659&p=3364919#p3364823
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Peter Foley
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Re: How I use I-ORP, and who shouldn't

Post by Peter Foley »

munemaker wrote:
Please define "too aggressive." Does that mean not maximizing your income or estate, or just beyond your personal comfort level. I ask because the program notes caution that novices may not be comfortable with the recommended level of Roth conversions.
"Too aggressive " in this context is that it maximized income at the expense of our estate. It was providing us with more income than we needed and the stated residual value of the estate after 30 years was lower. With the Retiree Portfolio Model I was able to back off the the aggressive Roth conversions in early years and project ample income with a larger residual estate.

One key factor that i-orp pointed out that if you were going to convert into a bracket (say into the 25% bracket) it is better to do so in one or two years rather than over a period of time. For example, converting $50K per year for two years provided a larger estate than converting $20K for five years. This is the effect of rate of return in the Roth account which I set to be higher than that of a tax deferred account. My assumption is that many people, myself included, primarily use equities in a Roth whereas the tax deferred account is a mix of stocks and bonds. The payback for this approach, however, does not appear for a number of years because of expense of the taxes paid.
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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

Peter Foley wrote: Fri Aug 18, 2017 2:57 pm munemaker wrote:
Please define "too aggressive." Does that mean not maximizing your income or estate, or just beyond your personal comfort level. I ask because the program notes caution that novices may not be comfortable with the recommended level of Roth conversions.
"Too aggressive " in this context is that it maximized income at the expense of our estate. It was providing us with more income than we needed and the stated residual value of the estate after 30 years was lower. With the Retiree Portfolio Model I was able to back off the the aggressive Roth conversions in early years and project ample income with a larger residual estate.
Do you know that you can enter either: 1) the maximum retirement income you want or 2) the size of estate you want to leave?

If you enter the income you want, it will use excess potential income to maximize your estate.

Alternatively, if you enter the size of the estate you want to leave, it will maximize your income after that estate requirement is satisfied.
Last edited by munemaker on Fri Aug 18, 2017 7:53 pm, edited 1 time in total.
Mitchell777
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Re: How I use I-ORP, and who shouldn't

Post by Mitchell777 »

Recently retired so giving this issue more thought, although I have planned in the past. Highly likely I will pass with assets at least in high six figures with no heirs. Has anyone confronted the question as to do you consider ROTH conversions (i.e. paying tax early) if your estate goes to tax exempt charities?
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LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

Yes. Any remainder in my estate will go to charity. But my planning scenario is that I spend the last nickel the day after I die.

First priority is taking care of myself and DH.

If I die before DH, most or all he gets will be in ROTH, with charities getting the IRA. If I survive DH, and it looks like there will be a surplus, I'll try to gently preserve IRA for charity. Generally, people should get ROTH, and charities should get IRAs.

I haven't run this on I-ORP, but I wonder if the ROTH conversions presume people or charities when an estate is preserved. That would be easy to surmise by simply comparing the ROTH conversion with, and without a preserved balance for the estate. If it increases the ROTH conversions, they are presuming people are heirs, and you are paying their taxes. I'll bet that is not the case, but that's the experiment I'd run to confirm. Because if it is going to charity, no point in wasting assets paying taxes.
Last edited by LeeMKE on Fri Aug 18, 2017 9:27 pm, edited 1 time in total.
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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

FiveK wrote: Fri Aug 18, 2017 12:47 pm
smitcat wrote: Fri Aug 18, 2017 11:53 am I cannot speak for others but when we check the IOPR calcs with tax software we are really close. That results in us seeing Roth conversions as being a good thing in a few ways even at higher rates in our case.
Well done to do a double check! In that case you are likely fine.

I'd be concerned about cases such as viewtopic.php?f=10&t=218659&p=3364919#p3364823
Your link takes me to a thread discussing the omission of PEP, AMT, NIIT. These are far away from my world. Do any of these apply to you? If you don't know, they probably do not.
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Re: How I use I-ORP, and who shouldn't

Post by freebeer »

Peter Foley wrote: Fri Aug 18, 2017 2:57 pm munemaker wrote:
...converting $50K per year for two years provided a larger estate than converting $20K for five years. This is the effect of rate of return in the Roth account which I set to be higher than that of a tax deferred account. My assumption is that many people, myself included, primarily use equities in a Roth whereas the tax deferred account is a mix of stocks and bonds. ...
This seems an confusing assumption that not only isn't necessarily applicable to yourself or others but more importantly would tend to drown out the signal of whether conversion from Roth to tax-deferred is desirable apples-to-apples. Sure if you assume a higher rate of return for investments in account B than account A any computer program will recommend conversion from A into B asap.
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FiveK
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

munemaker wrote: Fri Aug 18, 2017 9:25 pm Your link takes me to a thread discussing the omission of PEP, AMT, NIIT. These are far away from my world. Do any of these apply to you? If you don't know, they probably do not.
They would if we were to convert a large enough fraction of our traditional accounts in few enough years.

Also, those are merely examples of the general issue. Because it is based on linear programming, i-orp will find its answer at some optimal "corner", such as where marginal tax rates change. If it ignores significant step changes in the marginal rate, it may find the wrong corner.

I'm not saying i-orp is bad - not at all. It seems an excellent piece of work. In many (most?) cases, it will get the taxes close enough for a useful result. "It would be nice if" more of the tax code could be incorporated - even better if it's already in there. And yes, it's always easy to ask for something someone else would have to do.
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Re: How I use I-ORP, and who shouldn't

Post by 2pedals »

I am in favor of I-ORP and I also believe in an "aggressive" conversion of Tira and 401K to Roth after retirement and before SS. I-ORP does not include the projected value of an inherited Roth rather than tax deferred or taxable account. The Roth will continue to grow tax free with RMDs over the lifetime of the beneficiary. For those that wish to leave a legacy, the Roth is an excellent tool.
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Re: How I use I-ORP, and who shouldn't

Post by dodecahedron »

randomguy wrote: Thu May 11, 2017 4:37 pm And finally: Fire any planner who suggests taxable first, followed by tira and then by a ROTH unless they have some pages of math to back it up. The odds of that strategy being optimal in terms of maximizing spendable money is very, very low. It does a great job though of keeping the balances as high as possible for as long as possible which is great if the planner if collecting a 1% AUM fee. Not so great for you. Blended strategies are just always better. They aren't as easy to express though.
Wouldn't the planners be better off as far as maxing their AUM fees for as long as possible if they encouraged you to draw down your Roth before tax deferred accounts?
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Re: How I use I-ORP, and who shouldn't

Post by Peter Foley »

Freebeer wrote in red below:
Peter Foley wrote: ↑Fri Aug 18, 2017 2:57 pm
munemaker wrote:
...converting $50K per year for two years provided a larger estate than converting $20K for five years. This is the effect of rate of return in the Roth account which I set to be higher than that of a tax deferred account. My assumption is that many people, myself included, primarily use equities in a Roth whereas the tax deferred account is a mix of stocks and bonds. ...
Freebeer wrote
This seems an confusing assumption that not only isn't necessarily applicable to yourself or others but more importantly would tend to drown out the signal of whether conversion from Roth to tax-deferred is desirable apples-to-apples. Sure if you assume a higher rate of return for investments in account B than account A any computer program will recommend conversion from A into B asap.
You are correct. The additional factors that must be considered are taxes paid for the cost of conversion in year 1 and the number of years it will take to regain that lost ground. An example: Convert 100,000 and pay 25,000 in taxes leaving 75,000 to grow in the Roth. Assume the Roth returns 2% more than the tax deferred. It takes about 15 years just to recoup the taxes.
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LeeMKE
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

Freebeer wrote in red below:
Peter Foley wrote: ↑Fri Aug 18, 2017 2:57 pm
munemaker wrote:
...converting $50K per year for two years provided a larger estate than converting $20K for five years. This is the effect of rate of return in the Roth account which I set to be higher than that of a tax deferred account. My assumption is that many people, myself included, primarily use equities in a Roth whereas the tax deferred account is a mix of stocks and bonds. ...
Freebeer wrote
This seems an confusing assumption that not only isn't necessarily applicable to yourself or others but more importantly would tend to drown out the signal of whether conversion from Roth to tax-deferred is desirable apples-to-apples. Sure if you assume a higher rate of return for investments in account B than account A any computer program will recommend conversion from A into B asap.
You are correct. The additional factors that must be considered are taxes paid for the cost of conversion in year 1 and the number of years it will take to regain that lost ground.
I wondered about this in my case, so I set returns for both IRA and ROTH to the same, and the recommended conversions changed, but not a lot. If you have equities in ROTH and a more conservative allocation in IRA/401K, you can check this for yourself.

Taxes paid as well as compounding are all calculated by I-ORP, so it makes it easy to see the effect of early conversions as more profitable than waiting too long.

In my case, I found a bubble caused by taxes in my Fidelity Retirement Planner. The extra taxes were significant and caused by $350k being highly taxed for about 4 years, and it wouldn't happen until I was in my eighties.

But once I knew that was coming, I figured out the present value of the surplus, and converted $61,000 over the next few years. Voila! the bubble disappeared completely.

So, when I-ORP suggested more aggressive conversions, I was ready to do what it recommended. I had the benefit of watching that bubble of taxes deflate as I made conversions each year.

I-ORP lowered my retirement tax bracket from 25% throughout retirement to safely in the 15% bracket. Granted I wasn't deep into the 25% bracket, but it is certainly a win for us to use our current situation to pay 15% now, to save 25% soon, plus compound tax free returns between now and the withdrawal dates.

I cringe when I hear Bogleheads saying they'll look at I-ORP when they retire or get closer to RMDs. The biggest benefit is to use I-ORP in your fifties, so conversions can be more graceful (or in the case of large conversions, possible). And I realize the I-ORP analysis scares some folks -- because they are late to examining this aspect of their portfolio, not because I-ORP is too aggressive.

<soapbox>Taxes have a huge impact on portfolio returns, in many cases, much more than anything else within our reach. Tax planning IMHO should be integrated with your financial planning, rather than waiting for big tax bills and lamenting your situation. Small changes early have a big impact, big moves later cost more. </soapbox>
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munemaker
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

FiveK wrote: Fri Aug 18, 2017 9:50 pm
munemaker wrote: Fri Aug 18, 2017 9:25 pm Your link takes me to a thread discussing the omission of PEP, AMT, NIIT. These are far away from my world. Do any of these apply to you? If you don't know, they probably do not.
They would if we were to convert a large enough fraction of our traditional accounts in few enough years.

Also, those are merely examples of the general issue.
After pondering your post for a while, I now understand what you are saying about other tax regulations that may not be implemented in i-ORP and whether they might affect me. I get it now and am researching for my own situation. I have a new appreciation for your comments.

However, I do understand what you mean by: "Because it is based on linear programming, i-orp will find its answer at some optimal "corner", such as where marginal tax rates change. If it ignores significant step changes in the marginal rate, it may find the wrong corner." Could you please elaborate on this?

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

Post by munemaker »

freebeer wrote: Fri Aug 18, 2017 9:26 pm
Peter Foley wrote: Fri Aug 18, 2017 2:57 pm munemaker wrote:
...converting $50K per year for two years provided a larger estate than converting $20K for five years. This is the effect of rate of return in the Roth account which I set to be higher than that of a tax deferred account. My assumption is that many people, myself included, primarily use equities in a Roth whereas the tax deferred account is a mix of stocks and bonds. ...

Just for the record, I did not write the above as stated. Peter Foley did. Personally I set the returns the same for traditional IRA, Roth IRA and taxable. That avoids the issue.
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FiveK
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

munemaker wrote: Sun Aug 20, 2017 10:12 pm However, I do understand what you mean by: "Because it is based on linear programming, i-orp will find its answer at some optimal "corner", such as where marginal tax rates change. If it ignores significant step changes in the marginal rate, it may find the wrong corner." Could you please elaborate on this?
Here's a decent reference that explains the maximum and minimum values of the optimization equation will always be on the corners of the feasibility region better than I could.

It shows a two-dimensional example, but the same principle applies as more variables are added: the optimum answer will be where inequalities intersect. Don't know how i-orp taxes are handled, but for a similar program there is
a separate inequality for each tax bracket and when you satisfy all of those inequalities, then you get the piecewise linear tax table.

See also Linear programming - Wikipedia for more gory details.
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Re: How I use I-ORP, and who shouldn't

Post by gneeby »

munemaker wrote: Fri Aug 18, 2017 8:54 am Not sure why i-ORP would recommend less income over more. Still playing with it and learning, so am not ready to email the author yet.
ORP defaults blank Social Security starting ages to the Full Retirement Age, an arbitrary choice. Social Security starting age is not part of the optimization.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

gneeby wrote: Tue Aug 22, 2017 10:17 am
munemaker wrote: Fri Aug 18, 2017 8:54 am Not sure why i-ORP would recommend less income over more. Still playing with it and learning, so am not ready to email the author yet.
ORP defaults blank Social Security starting ages to the Full Retirement Age, an arbitrary choice. Social Security starting age is not part of the optimization.
I deduced that through experimentation.

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

Post by munemaker »

FiveK wrote: Fri Aug 18, 2017 11:35 am
munemaker wrote: Fri Aug 18, 2017 11:17 am Thanks for the comments. Please define "too aggressive." Does that mean not maximizing your income or estate, or just beyond your personal comfort level. I ask because the program notes caution that novices may not be comfortable with the recommended level of Roth conversions.
Others may have a different concern, but my discomfort stems from the perception that i-orp does not do correct tax calculations and the marginal rates on those high conversions are actually much more punitive than i-orp understands. If you can shed light on this, that would be great.
I thought a lot about your post and how it might apply to me. i-ORP is recommending a number of conversions in the area of $170K to $190K. I researched PEP, AMT, NIIT for my own situation and think it is unlikely I will get caught in those. I tried to think about other taxes that could affect me if I make relatively high levels of Roth conversions, resulting in my income being much higher than it has ever been. The only thing I thought of is the Medicare premium, where the rates are much higher if a married couple reports over $170K. As a result of that, I am going to do limit my Roth conversions below the level recommended by i-ORP so my income is under $170K.

Thanks for bringing this up. I probably would not have thought of it until it was too late, at least until I was burned the first time.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

FiveK wrote: Tue Aug 22, 2017 4:17 am
munemaker wrote: Sun Aug 20, 2017 10:12 pm However, I do understand what you mean by: "Because it is based on linear programming, i-orp will find its answer at some optimal "corner", such as where marginal tax rates change. If it ignores significant step changes in the marginal rate, it may find the wrong corner." Could you please elaborate on this?
Here's a decent reference that explains the maximum and minimum values of the optimization equation will always be on the corners of the feasibility region better than I could.

It shows a two-dimensional example, but the same principle applies as more variables are added: the optimum answer will be where inequalities intersect. Don't know how i-orp taxes are handled, but for a similar program there is
a separate inequality for each tax bracket and when you satisfy all of those inequalities, then you get the piecewise linear tax table.

See also Linear programming - Wikipedia for more gory details.
After skimming the referenced material, I don't believe a user of the program is going to totally understand the logic of the program without discussing with the programmer. My results seem intuitively sound for my situation, and I am not at all concerned about this. In my opinion, you are overthinking it.
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

munemaker wrote: Sat Aug 26, 2017 11:39 pm My results seem intuitively sound for my situation, and I am not at all concerned about this. In my opinion, you are overthinking it.
If the marginal rates shown by tools such as Tools and calculators - Personal_finance_toolbox or TurboTax, etc., match the rates shown by i-orp then one has little reason for concern.

If those rates are significantly different, one has good reason to question i-orp's suggestion.

Things could easily differ from one person to the next. Good to hear things appear straightforward in your case.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

FiveK wrote: Sun Aug 27, 2017 12:14 am
munemaker wrote: Sat Aug 26, 2017 11:39 pm My results seem intuitively sound for my situation, and I am not at all concerned about this. In my opinion, you are overthinking it.
If the marginal rates shown by tools such as Tools and calculators - Personal_finance_toolbox or TurboTax, etc., match the rates shown by i-orp then one has little reason for concern.

If those rates are significantly different, one has good reason to question i-orp's suggestion.

Things could easily differ from one person to the next. Good to hear things appear straightforward in your case.
Good advice. Thanks
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Re: How I use I-ORP, and who shouldn't

Post by gneeby »

FiveK wrote: Sun Aug 27, 2017 12:14 am If the marginal rates shown by tools such as Tools and calculators - Personal_finance_toolbox or TurboTax, etc., match the rates shown by i-orp then one has little reason for concern.

If those rates are significantly different, one has good reason to question i-orp's suggestion.
As ORP's keeper and feeder I can't help but stick my 2 cents worth in.

This discussion goes right to the heart of an issue of computer modeling, or any other modeling for that matter: "Model valdidation". "Do the model's results match the real world to an acceptable degree of tolerance?" Matching ORP's tax computations to other programs' results is one facet of the issue. ORP's 3-PEAT historical simulator is another way to address the problem. My paper "Mitigating the Impact of Personal Income Taxes on Retirement Savings Distribution" in the Journal of Personal Finance addresses the issue by comparing ORP's results to a conventional withdrawal strategy simulator. There is a white paper at orp.com that goes into the issue of model validation.

If a model has been validated in a manner acceptable to the user than it can be used with little question. In the meantime, discussions such as this one are important.

ORP's purpose is two fold: 1) illustrate the issues of retirement income management in a manner that is useful to the casual user, and 2) see just how far linear programming can be pushed as a retirement planning application . Model validation is central to purpose #2.

My appeal is to please bring to my attention at orplanner@gmail.com any and all evidence that challenges ORP as a guideline generator for
for retirement income management. We're doing science here, folks; everybody is invited into the game.
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 »

I have little success in running the ORP, it seems like the program won't run if there is null value somewhere. Why can't it default to some preset values ?
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Re: How I use I-ORP, and who shouldn't

Post by FiveK »

DrGoogle2017 wrote: Sun Aug 27, 2017 10:53 am I have little success in running the ORP, it seems like the program won't run if there is null value somewhere. Why can't it default to some preset values ?
You'll probably have to provide more information if you want debugging help. E.g., entering only two things: Age 60 and Tax-deferred Savings of $100K, gives a reasonable result.
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Re: How I use I-ORP, and who shouldn't

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I gave more information than that. I used the long form, but I skipped the 3-peat section and it didn't run. It forces me to read more. I just want to have a rough idea.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

DrGoogle2017 wrote: Sun Aug 27, 2017 1:43 pm I gave more information than that. I used the long form, but I skipped the 3-peat section and it didn't run. It forces me to read more. I just want to have a rough idea.
Skipping entries in the 3-peat section will not prevent i-orp from running. You must have some inputs elsewhere that are conflicting. For example, I entered that my Roth conversions should be limited to the 15% bracket when I am in the 25% bracket. The program would not run, and rightfully so.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

gneeby wrote: Sun Aug 27, 2017 10:50 am
If a model has been validated in a manner acceptable to the user than it can be used with little question. In the meantime, discussions such as this one are important.
To me, the reason for comparing i-ORP results to a tax program is to see if any of the extra taxes on high income people might apply to me when doing Roth conversions. Things like AMT, PEP and NIIT. I doubt these "extra taxes" are incorporated into i-ORP and therefor before doing the conversions, I want to check.
Last edited by munemaker on Sun Aug 27, 2017 2:31 pm, edited 1 time in total.
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Re: How I use I-ORP, and who shouldn't

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It complained something about null value. I thought I had zero of all areas I wasn't sure of, plus skipping the 3-peat. Maybe I was running on my iPad. My daughter said a lot of programs are not tested on iPad. I had that problem with Airbnb on iPad recently, but once I loaded the app on iPhone, I didn't have any problem.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

DrGoogle2017 wrote: Sun Aug 27, 2017 2:16 pm It complained something about null value. I thought I had zero of all areas I wasn't sure of, plus skipping the 3-peat. Maybe I was running on my iPad. My daughter said a lot of programs are not tested on iPad. I had that problem with Airbnb on iPad recently, but once I loaded the app on iPhone, I didn't have any problem.
I suggest you leave the unused fields blank (no entries) instead of entering zeros.
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 »

munemaker wrote: Sun Aug 27, 2017 2:30 pm
DrGoogle2017 wrote: Sun Aug 27, 2017 2:16 pm It complained something about null value. I thought I had zero of all areas I wasn't sure of, plus skipping the 3-peat. Maybe I was running on my iPad. My daughter said a lot of programs are not tested on iPad. I had that problem with Airbnb on iPad recently, but once I loaded the app on iPhone, I didn't have any problem.
I suggest you leave the unused fields blank (no entries) instead of entering zeros.
Same problem. Null is not an object type of error message.
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Re: How I use I-ORP, and who shouldn't

Post by gneeby »

DrGoogle2017 wrote: Sun Aug 27, 2017 2:16 pm It complained something about null value. I thought I had zero of all areas I wasn't sure of, plus skipping the 3-peat. Maybe I was running on my iPad. My daughter said a lot of programs are not tested on iPad. I had that problem with Airbnb on iPad recently, but once I loaded the app on iPhone, I didn't have any problem.
I too encountered the same problems with the iPad. We seem to be looking at a javascript error pecular, as far as I can tell, to the iPad. Closing down the browser, either Safari or Chrome, and restarting seemed to make the problem go away. I have no faith at all in that resolution. More study is needed.
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Re: How I use I-ORP, and who shouldn't

Post by gneeby »

DrGoogle2017 wrote: Sun Aug 27, 2017 2:16 pm It complained something about null value. I thought I had zero of all areas I wasn't sure of, plus skipping the 3-peat. Maybe I was running on my iPad. My daughter said a lot of programs are not tested on iPad. I had that problem with Airbnb on iPad recently, but once I loaded the app on iPhone, I didn't have any problem.
It turns out that your iPad detected and flagged a javascrpt coding error that the other platforms were covering up, for reasons unknown.

Anyway, it is fixed now. You may use your iPad on ORP.
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Re: How I use I-ORP, and who shouldn't

Post by LeeMKE »

:thumbsup gneeby
The mightiest Oak is just a nut who stayed the course.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

LeeMKE wrote: Mon Aug 28, 2017 7:40 am :thumbsup gneeby
+1
:thumbsup :thumbsup
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 »

gneeby wrote: Mon Aug 28, 2017 6:50 am
DrGoogle2017 wrote: Sun Aug 27, 2017 2:16 pm It complained something about null value. I thought I had zero of all areas I wasn't sure of, plus skipping the 3-peat. Maybe I was running on my iPad. My daughter said a lot of programs are not tested on iPad. I had that problem with Airbnb on iPad recently, but once I loaded the app on iPhone, I didn't have any problem.
It turns out that your iPad detected and flagged a javascrpt coding error that the other platforms were covering up, for reasons unknown.

Anyway, it is fixed now. You may use your iPad on ORP.
Thank you for fixing it. But somehow it didn't work on my iPad.
So today, I ran I-ORP from my computer, interesting results. And sometime it depends on what I input the software choked. But I didn't see anything that I could input rising source of income at a certain age. I only saw a one time event for income. Did I miss something?
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

DrGoogle2017 wrote: Sat Sep 02, 2017 1:04 pm I ran I-ORP from my computer, interesting results. And sometime it depends on what I input the software choked. But I didn't see anything that I could input rising source of income at a certain age. I only saw a one time event for income. Did I miss something?
The software will "choke" if you enter nonsensical inputs. For example, if you income is in the 25% bracket and you tell i-ORP to limit Roth conversions to the 15% bracket...things like that. So go back and reconsider your inputs.

Not exactly sure what you mean buy you "didn't see anything that you could input rising source of income at a certain age." There are age-based inputs for pensions, earned income and SS.
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Re: How I use I-ORP, and who shouldn't

Post by DrGoogle2017 »

munemaker wrote: Sat Sep 02, 2017 2:01 pm
DrGoogle2017 wrote: Sat Sep 02, 2017 1:04 pm I ran I-ORP from my computer, interesting results. And sometime it depends on what I input the software choked. But I didn't see anything that I could input rising source of income at a certain age. I only saw a one time event for income. Did I miss something?
The software will "choke" if you enter nonsensical inputs. For example, if you income is in the 25% bracket and you tell i-ORP to limit Roth conversions to the 15% bracket...things like that. So go back and reconsider your inputs.

Not exactly sure what you mean buy you "didn't see anything that you could input rising source of income at a certain age." There are age-based inputs for pensions, earned income and SS.
That's what I figured but I wish there was some kind of error message. I had to play around with the numbers.

I have several sources of income coming at different time frame. For example, COLA pension at XX age, another COLA income at XX+5, etc..
How do you expand to multiple sources of income.
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Re: How I use I-ORP, and who shouldn't

Post by munemaker »

DrGoogle2017 wrote: Sat Sep 02, 2017 3:54 pm
munemaker wrote: Sat Sep 02, 2017 2:01 pm
DrGoogle2017 wrote: Sat Sep 02, 2017 1:04 pm I ran I-ORP from my computer, interesting results. And sometime it depends on what I input the software choked. But I didn't see anything that I could input rising source of income at a certain age. I only saw a one time event for income. Did I miss something?
The software will "choke" if you enter nonsensical inputs. For example, if you income is in the 25% bracket and you tell i-ORP to limit Roth conversions to the 15% bracket...things like that. So go back and reconsider your inputs.

Not exactly sure what you mean buy you "didn't see anything that you could input rising source of income at a certain age." There are age-based inputs for pensions, earned income and SS.
That's what I figured but I wish there was some kind of error message. I had to play around with the numbers.

I have several sources of income coming at different time frame. For example, COLA pension at XX age, another COLA income at XX+5, etc..
How do you expand to multiple sources of income.
For me, I do get error messages in these cases, although there are not prescriptive.

You are right. You cannot enter multiple pensions per person.

Possibly you could put one pension source in your name, and a subsequent one under your spouse's name. Perhaps you could combine them, recognizing that your answer will not be as accurate. Alternatively, if one is small, you might just exclude it from the analysis. You are going to have to be a little create here.
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Re: How I use I-ORP, and who shouldn't

Post by cherijoh »

ThePrune wrote: Thu May 11, 2017 9:34 am
LeeMKE wrote:Withdrawal Strategies — I suspected the usual default of most of the planners was not optimum for us. Most planners are static in emptying first taxable accounts, followed by 401K and IRA, and leaving ROTH accounts to the end of plan.
This is the "default" only for the uneducated planners (of which, unfortunately, there are an abundance!) The American College for Financial Services tries to teach their students about better withdrawal strategies in the courses leading up to their Retirement Income Certified Professional (RICP) designation.
I see you interpreted "planners" as people, while I thought the OP's comment was directed at alternate retirement planning software. :wink:
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