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Setting Multiple Retirement Spending(s)

Posted: Sat Nov 29, 2014 5:23 pm
by sparky62

Just wondering if there is some way to set a fixed (todays dollars) retirement income for different periods.

For example, here in Canada, it is advantageous to withdraw to the top of first income bracket of around $45,000 per year before aged 65 from our tax deferred account (RRSP) and transfer any savings those years to our tax free accounts (TFSA).

Then at age 65, reduce our withdrawal from our RRSP to around $35,000 / year to qualify for the "Age Amount Tax Credit" - since it is clawed back after $35,000.

Chris D.

Re: Setting Multiple Retirement Spending(s)

Posted: Sun Nov 30, 2014 9:58 am
by jimr
I assume you're getting tripped up with the 'fixed, today's dollars' part of this. As you probably know, you can zero out the Retirement expenses field on the main input page and enter different expenses in the Additional Inputs window for different years.

When specifying fixed cash flows, sometimes you want the cash flow to stay fixed from the start of the plan, while other times you want it to start with a preset purchasing power, then stay fixed once it starts..

As you may have noticed, additional inputs cash flow entries always start with their full purchasing power, regardless of their Cola type setting. So if you specify a cash flow of $45,000 nominal that starts in 10 years, the cash flow will start with the purchasing power of $45,000, which but might be something like $54,000 in nominal dollars when it starts.

I really should add an option in the cash flow setup so users can control this behavior. In the meantime, the best way to handle this is to pre-adjust the cash flow amount by reducing the amount to exactly offset the inflation adjustment.

Here's an example of how to do this using a simple formula in excel:

Cash flow amount: $45,000
Years from start of plan to start of cash flow: 10
Inflation rate: 3%

formula to calculate the adjusted amount: =PV(.03,10,0,-45000)

Re: Setting Multiple Retirement Spending(s)

Posted: Sun Nov 30, 2014 10:13 am
by jimr
As I re-read your question, I think I missed the important part about moving funds between the tax deferred and taxable portfolios. The normal portfolio withdrawal order is taxable first, then tax deferred, then tax free. Forcing withdrawals from tax deferred while there's still a taxable balance isn't possible.

You may be able to somewhat adjust for this by manually reducing the tax deferred portfolio and increasing the taxable portfolio from the start, but that would require a lot of manual adjustment and I'm not sure it'd be accurate enough to be worth it.

Re: Setting Multiple Retirement Spending(s)

Posted: Sun Nov 30, 2014 11:29 pm
by sparky62
Hi jimr,

Thanks for your response. I have re-entered as "Other Expenses" for the years of income from 56-64 as $45,000 and 65 - End as $35,000. Which makes sense.

Now I am just trying to verify all of the results. Still trying to figure out why the annuity income after 70 has no taxes, even though I have entered it as "100% Taxable Percent".

Anyway - still slogging away to make it work.