Author Topic: Do you guys know of a good withdrawal strategy calculator?  (Read 935 times)

tenant13

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Do you guys know of a good withdrawal strategy calculator?
« on: November 13, 2019, 01:04:53 PM »
I apologize if it's on the forum and I just didn't notice. I'm looking for something that would allow me to plug in the numbers and dates and spit out tax/wealth preservation scenarios. Not just: "what you want to do has 90% chance of success" but rather "if you take 10k from savings, sell 35k worth of equities and use 25k to buy them back (essentially convert capital gain into base), convert 12k to ROTH, collect 1k monthly in dividends etc. - your tax bill will be such and such. If you work in addition to that and make 10k, you can drop 7 k to IRA, write off 2k in medical spending (like do some expensive dental work) and the tax bill will be so and so. " Do I just use TurboTax for that or is there something better? I don't like TT cluttered interface.

I've just FIRE'd. At 56 I have a combination of accounts, a yearly budget and a lot of questions. I started talking to financial advisors, tax planners and the like but every time I do I find myself knowing just as much as they do plus their knowledge is so compartmentalized that I don't see much value in paying them while having to coordinate between what they tell me.

BECABECA

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #1 on: November 13, 2019, 03:37:13 PM »
Not sure there’s anything that does exactly what you’re asking for.

Have you already looked at http://www.i-orp.com/ ? I think it gets at some of this stuff.

For other parts of this, you’ll probably need to make your own spreadsheet or program to calculate this stuff. If you program, here’s a github project you might want to leverage:
https://forum.mrmoneymustache.com/taxes/wrote-a-retirement-calculator-because-i-orp-com-didn%27t-do-what-i-want/

Monkey Uncle

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #2 on: November 14, 2019, 07:23:24 AM »
The Case Study spreadsheet created by @MDM is probably the closest thing to what you are looking for.  I forget exactly where that is located; perhaps he will chime in with a link.

terran

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #3 on: November 14, 2019, 07:28:31 AM »
The Case Study spreadsheet created by @MDM is probably the closest thing to what you are looking for.  I forget exactly where that is located; perhaps he will chime in with a link.

It's in the "Forum Information & FAQs" section, usually near the top since it gets frequent updates: https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/msg2489712/#new

MDM

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #4 on: November 14, 2019, 11:04:24 AM »
There is no Star Trek-like "Computer, what is the best...?" tool.  Combining the two already mentioned (I-ORP for a multi-year look that glosses over some tax details; case study spreadsheet for a detailed look at a single year's tax picture), however, can be very useful for DIY FIRE.

kendallf

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #5 on: November 14, 2019, 01:00:30 PM »
There is no Star Trek-like "Computer, what is the best...?" tool.  Combining the two already mentioned (I-ORP for a multi-year look that glosses over some tax details; case study spreadsheet for a detailed look at a single year's tax picture), however, can be very useful for DIY FIRE.

MDM, there's probably a good market for something that would allow you to optimize your tax strategy over retirement by dividing up the "buckets".  I'd pay for it, for one.  I am retiring in 3 years and will have a pension, supplemental pension for a few years, TSP assets, eventually Social Security, and a wife who's going to still work.  It's a good problem to have but there are too many moving parts!  I have some basic ideas to follow but especially things like income vs. Roth conversions and resultant tax brackets vs. MRDs in later years have me shrugging my shoulders... it's a mess to calculate.

Go Curry Cracker has touched on a lot of these but largely in context of his own situation.

MDM

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #6 on: November 14, 2019, 02:13:45 PM »
... it's a mess to calculate.
Yes, even assuming we know future tax law, in addition to other unknowns such as life expectancy and investment returns.

There is a long thread on this subject at Retirement Tax Planning - Income Optimization? - Early Retirement & Financial Independence Community.  I tried the free version of the tool mentioned there and it was worth what it cost.  The claims for the version behind the paywall, however, are interesting - but I haven't decided whether to try it.

FWIW, below is what we are doing with some of the available tools.  While there are differences, our situation and yours appear very similar in complexity. :)

Open Social Security: Free, Open-Source Social Security Calculator - this suggests optimum SS benefit start dates for each of us.  As we have no reason to expect shorter than average lifespans, and noting the marginal tax rate implications of any extra income on Roth conversions, we treat the results as "start no earlier than ___."  Might just do FRA for the lower earner and age 70 for the higher earner.  Fixing the SS start dates removes two degrees of freedom.

Optimal Retirement Planner - Extended Parameter Form - this gives us a general idea of how aggressive we might be with Roth conversions.  We take the results with a few grains of salt, however, when it suggests large conversions that would trigger NIIT (I-ORP ignores NIIT completely) and IRMAA (I-ORP recently added some IRMAA considerations, but perhaps doesn't include the full impact).  On the other hand, there's always the chance one of dies prematurely and the survivor filing single would wish we had done larger conversions.  Also, "tie (or even a slightly lower tax rate later) goes to the Roth" when one uses taxable funds to pay the tax on a conversion

Considering the last two sentences, it may make sense to go "one bracket higher" when converting for MFJ if the next higher bracket is "close" (e.g., 10% to 12%, or 22% to 24%) vs. the expected withdrawal marginal rate.  It's harder to see converting into the higher bracket for the larger steps of 12% to 22% or 24% to 32%.

Case study spreadsheet (CSS) - No surprise here, eh?  Actually we use our own tax spreadsheet, built over many years for our specific situation, but it has the same functionality of the CSS's marginal tax rate chart showing all the steps and spikes for a range of capital gains, traditional to Roth conversions, etc.  Given the same inputs, the CSS and our own (and TurboTax) all calculate the same federal tax.  The CSS is slightly less accurate on the absolute amount of state tax, but exact for the marginal rates of interest.

secondcor521

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #7 on: November 14, 2019, 09:48:16 PM »
Open Social Security: Free, Open-Source Social Security Calculator - this suggests optimum SS benefit start dates for each of us.  As we have no reason to expect shorter than average lifespans, and noting the marginal tax rate implications of any extra income on Roth conversions, we treat the results as "start no earlier than ___."  Might just do FRA for the lower earner and age 70 for the higher earner.  Fixing the SS start dates removes two degrees of freedom.

@MDM, do you use the advanced options?  If so, what do you use for the discount rate and why?  Thank you.

MDM

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #8 on: November 14, 2019, 10:56:29 PM »
Open Social Security: Free, Open-Source Social Security Calculator - this suggests optimum SS benefit start dates for each of us.  As we have no reason to expect shorter than average lifespans, and noting the marginal tax rate implications of any extra income on Roth conversions, we treat the results as "start no earlier than ___."  Might just do FRA for the lower earner and age 70 for the higher earner.  Fixing the SS start dates removes two degrees of freedom.

@MDM, do you use the advanced options?  If so, what do you use for the discount rate and why?  Thank you.
Great question!

You may already be familiar with Claiming Social Security Early to Invest It: What Rate of Return (Discount Rate) Should We Assume? — Oblivious Investor, the calculator's author's viewpoint: a very low discount rate (~0.4% last I checked).

Using the default mortality tables, the NPV difference between what the calculator suggests for start dates vs. the simple "lower earner takes at FRA and files for spousal benefits at the same time the higher earner takes at age 70 strategy" is <1% for discount rates of 3% or less.  As the discount rates increased the primary change was the start date for the lower earner.  IIRC at 3% it suggested 69 years 11 months for the higher earner. ;)

Because, for our situation, we think earlier SS income would make a material reduction in the amount of favorable Roth conversions we could do between now and that age 70, we're willing to leave the pencil unsharpened and stick with our simple strategy.

secondcor521

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #9 on: November 15, 2019, 12:04:39 PM »
Open Social Security: Free, Open-Source Social Security Calculator - this suggests optimum SS benefit start dates for each of us.  As we have no reason to expect shorter than average lifespans, and noting the marginal tax rate implications of any extra income on Roth conversions, we treat the results as "start no earlier than ___."  Might just do FRA for the lower earner and age 70 for the higher earner.  Fixing the SS start dates removes two degrees of freedom.

@MDM, do you use the advanced options?  If so, what do you use for the discount rate and why?  Thank you.
Great question!

You may already be familiar with Claiming Social Security Early to Invest It: What Rate of Return (Discount Rate) Should We Assume? — Oblivious Investor, the calculator's author's viewpoint: a very low discount rate (~0.4% last I checked).

Using the default mortality tables, the NPV difference between what the calculator suggests for start dates vs. the simple "lower earner takes at FRA and files for spousal benefits at the same time the higher earner takes at age 70 strategy" is <1% for discount rates of 3% or less.  As the discount rates increased the primary change was the start date for the lower earner.  IIRC at 3% it suggested 69 years 11 months for the higher earner. ;)

Because, for our situation, we think earlier SS income would make a material reduction in the amount of favorable Roth conversions we could do between now and that age 70, we're willing to leave the pencil unsharpened and stick with our simple strategy.

I ask because although in general I know what a discount rate is, in this particular scenario I'm not sure what rate to choose for myself.  This is because I can't get my mind wrapped around what the discount rate applies to in this case.

Currently I plan to start SS at 70.  I am single, however.  I did notice that changing the discount rate varied the recommended claiming age.  0.23% and below was 70 years 0 months, above that value and it starts to drop the recommended retirement age.  A quick sensitivity analysis shows that the variance is not that great, though, to either discount rate used or claiming at a sub-optimal date (i.e., claiming at 66 might be best with a discount rate of 3%, but claiming at 65 or 69 assuming that same discount rate only reduces the NPV by a few hundred or a few thousand dollars).

Since the optimal claiming date varied with discount rate, I had assumed that claiming at the best time was important, but it turns out that isn't true.  Lucky for me, I guess.  It is easier being single in terms of making that particular decision, as you undoubtedly know.

Thanks again.

tenant13

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Re: Do you guys know of a good withdrawal strategy calculator?
« Reply #10 on: November 15, 2019, 02:26:26 PM »
Thank you! A lot very valuable links and suggestions. I'll try to master as much as I can - why not? I like the numbers and being retired I have time for that!