Basic Retirement Planner Software (RP)
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The RP retirement planner is the predecessor, and a greatly scaled-down version, of RWR (Real World Retirement software). This means it's simple, cheaper, and easier to use. The differences are on the retirement software menu page.
Basic operation is to enter data (personal or client information) into the green-shaded areas of the input sheets, and then analyze the results by viewing the sheet tabs named, Presentation Pages.
The usual retirement strategy is to input a more optimized combination of personal data that will allow reaching retirement goals without running out of money, before a certain age.
Each year's income goal (how much money is forecasted to be spent in that year) is calculated, and then non-asset incomes (pensions, earned incomes, Social Security, etc.) are subtracted.
The remaining income needs are then withdrawn from each investment account (bucket) as needed on a pro-rata basis.
For example, if there are only four investment buckets with values of $500,000, $250,000, $150,000, and $100,000, and the income need was $100,000 in that year; then $50,000 of income would come out of the $500k fund, $25,000 out of the $250k fund, $15,000 out of the $150k, and $10,000 out of the $100k fund.
So all investments will run out of money at the same time. So retirement income payouts work similar to RWR with all of the investment buckets set to Flexible Payout.
Even though RP is very limited compared to RWR (e.g., it ignores all taxes), it still has most all of the functions other retirement planners have, and you can still perform dozens of more important functions that other retirement software can't.
For example, you can use the annual results of the Cash Flow Projector to input (into RP), both present and forecasted retirement expenditures for every year, over 70 years into the future. This allows complete forecasting control over retirement income goal.
You can also use Excel's built-in Goal Seek function to perform just about any "What-if" scenario other retirement planners can do, and many more they can't.
To download a demo, right click on a link below, and then choose "Save (Target) As..." to save to your hard drive. Then find it and open with Excel.
Download the non-functional Current Retirement Plan demo
Download the Proposed Retirement Plan demo showing typical professional financial planner recommendations implemented
Download the retirement planner's user manual
Quickie directions: How to make a retirement plan in about 10 minutes
Retirement Planner Operation, Features, and Other Information
RP is not near as huge, powerful, nor complex as RWR, but it's not a trivial retirement analysis calculator either. So it will still get you "in the ballpark" better than most all other retirement software selling for under $100.
If you're experienced with other retirement spreadsheets, then you'll see RP solves most of the problems and limitations they're infamous for.
Below is a list of important functions in running retirement projections, which RP will do, and other retirement calculators can't. Most features are illustrated in the demos. When it says that RP will perform a certain function, it means that RP and our RWR, Dual RWR, and the IFP can too.
If you're not a professional financial planner, then when you read client or spouse, just think you and/or your spouse.
Important Functions RP Will Perform that Most Other Retirement Planners Can't:
• Both client and spouse can have up to five investment assets each (for a total of ten "buckets"). These retirement savings accounts are all treated as stand-alone entities (meaning what's going on with one won't affect the others, except for the calculation of pro-rata retirement income withdrawals).
• Most other retirement planning calculators are written in some arcane programming language where you can't even see how the numbers are generated (AKA code-driven).
With RP being written in Excel, you can see the flow of each calculation, so you can audit, trace, and solve all mysteries back to your input. All of our financial planning software has complete transparency.
• In addition to being able to see, analyze, and print everything, you can usually control every dollar in every year too (by using the many manual overrides).
• For financial advisors, there is a custom Retirement Fact Finder already made for it. It's a small Word document that you'd just print, send, they'd fill it out and send it back, and then you'd input their financial data into the retirement plan.
• An annual income goal is how much money you'll need, or want, to spend when you'll retire.
Both client and spouse's income goals can start separately, and at any year. In other words, the husband (or wife) can retire at age 60, and the wife (or husband) can keep working until they want to stop. Both do not have to retire in the same year, like other retirement plans may force them to.
• Both client and spouse can have their own separate income goals. As a corollary to the above feature, since clients can retire separately at any age, it's only logical that they have their own separate income goals too.
For example, assume husband wife are both age 60. The husband can retire at his age 60 with a goal of $2,000 a year, while the wife keeps working five more years after the husband retires, and then she retires on $75,000 a year. Other retirement calculators may not handle this Real World scenario the way RP does, because most of them force the husband wife to retire in the same year, with only one combined annual income goal.
• Both client and spouse can have their income goals overridden on a year-by-year basis. With other retirement calculators, you'd input an income goal in today's dollars, and an inflation rate. The income goal then increases every year by the inflation rate, both before retirement and afterwards.
This is the normal way of things and is how RP does it too. But with RP, both the inflation rate and the annual income goals can be manually overridden every year, so you can make them both whatever you want them to be.
For example, say someone wants $4,000 a month in today's dollars inflated at 3%, but they also want it to go to $5,000 a month starting at age 70 ending at age 80, inflating at 4%, and then have it go back to the way it was. You can do all of that, change it year-by-year, and anything else you want.
This is great for accounting for lowering expenses due to home downsizings, increasing expenses from going into nursing homes, long vacations, etc.
• Both client and spouse can each have separate post-retirement earned incomes. They can start and stop at any year, be automatically inflated, and manually overridden in each year. For example, these are used when someone wants to retire at 60, but also wants to run a side business from 66 to 75.
If there are multiple post-retirement earned incomes, then you can just input the annual totals using the manual overrides.
• Both client and spouse can also have up to two miscellaneous incomes or expenses each. They can start and stop at any year and be automatically inflated. These are great for adding childcare expenses, debt payments, or recommended disability and/or long-term care insurance premiums into the Proposed version.
• Both client and spouse can each have up to three totally manually-input expenses or incomes (without market values, rate of returns, or regular cash flows). There is nothing automatic here, like inflators, start or stop years, or taxes switches.
These are great for accounting for things with unequal cash flows. You can use any Excel formula for complete control. An example of the need for this is accounting for vehicle replacements every few years. You can even have something alternate between income and expense, it doesn't matter.
RP does this for so many unique incomes and expenses (ten total), while giving you complete control over every income or expense amount in the 70-year window.
• Our Personal Budget and Cash Flow Projector is a good financial tool for projecting and using monthly budget amounts as retirement income goals.
After calculating how much money you're projected to need in the year you retire, you just link / integrate them into RP for maximum accuracy. Then in every year, RP will use the most accurate annual income need numbers possible (and RP's numbers will automatically change when you update or change your family budget).
You can also use the annual cash flow numbers from other financial planning software that doesn't do retirement plans very well, and enter (or integrate) these numbers into the retirement spreadsheet to complement these plans (that's how RP got started in 1996).
The first phase of the process is to create a current snapshot of incomes and expenses (family budget making). Then if you have big future expenses, like children's college, you'd crunch the numbers using the College Funding Software, and integrate them into the financial plan.
Then you'd project these amounts into the future using the Cash Flow Projector. Then in the year you retire, you'll start using the detailed annual Cash Flow Projector amounts as income goal inputs into RP. You'd only have to integrate this once, then changes in one module will automatically flow to into the others.
• For financial planners, you can use just RP (without having the Cash Flow Projector) to easily sell disability and/or long-term care insurance by illustrating the long-term effects of disability and/or nursing home, both before retirement and afterwards. Ditto for presenting life insurance needs.
In the Current version, use the manual expense areas (described above) to input the catastrophic costs of uninsured disability and/or long-term care. These would be ~$5,000 a month from 70 to 90 in nursing home bills, plus all of the extra medical bills, plus the loss of year's worth of earned income resulting in no more retirement savings, all with lower Social Security benefits. The results will usually be little-to-no "retirement" for anyone as planned.
Then save this version as the Current version. Now save it again as the Proposed version.
This time just input into another manual area, the DI and/or LTC premiums needed to insure for the ~$5,000 a month benefit. Then in another, input the insurance benefits paid to cover the ~$5,000 a month LTC and other medical expenses. You also can show DI benefits funding retirement savings.
The bottom-line is that you can easily model any Real World scenario to show two completely different, and totally realistic, financial futures. The Current version would show no gold during the Golden Years and the Proposed version would show things working out "okay," considering the alternatives.
The night and day differences in all of the results then sell the DI and/or LTC policy for you without even needing the usual sales pitches.
So if you sell these policies, this will wake people up, because it forecasts their financial futures in great detail.
Everyone will agree with your words saying you need to buy this or that insurance policy, but it's the numbers that make people get out their checkbooks and sign applications.
For consumers and investors, you should know these facts and buy the appropriate amount of insurance.
• With the Cash Flow Projector's disability functions, combined with RP, you can create mini-financial plans that will account for disability, life insurance needs, and/or LTC.
You can create eight versions of future cash flows with the CFP, and then integrate them into eight versions of RP. Then the differences in what the Golden Years would be like will sell these insurance policies for you:
The first four would be the scenarios without paying these insurance premiums:
1) Risky retirement as if everything went as planned (no disability nor LTC)
The next four versions would show scenarios with these insurance premiums:
5) Insured retirement as if everything went as planned (no disability nor LTC)
With the manual income and expense input areas discussed below, you can do the same disability, life insurance, and/or LTC scenarios, without the Cash Flow Projector.
Below are simple example retirement plan demos showing how to this. It's pretty much the same thing using RP (without the Cash Flow Projector):
Download the Dual RWR demo showing the difference between risky living without disability insurance. The Current version shows being disabled at age 60 and the Proposed version shows being insured. So the Current version shows losing it all, and Proposed shows being just fine, considering, and paying DI premiums (and getting the policy benefits). The sample financial plan PDF showing disability needs is here.
Download the free Dual RWR demo showing the difference between risky living without long-term care insurance. The Current version shows being disabled at age 50 and needing long-term care. The Proposed version shows being insured for that. So the Current version shows losing it all, and Proposed shows being just fine, considering, and paying LTC premiums, then having the policy benefits pay the nursing home. The sample financial plan PDF showing long LTC needs is here.
Even though the able sample were made with Dual RWR, the concepts, inputting, and results are the same with RP.
• It will help financial advisors sell life insurance, and/or determine your long-term needs, using the same input concepts as above (the Cash Flow Projector is not even needed). Just input your scenarios as if a breadwinner passed in a certain year. You'd just stop Social Security and contributions to investments, add final expenses, life insurance premiums, and the then input the benefits as a normal asset.
• You can specify ages when the calculations stop, and separately, when all of the presentation data stops.
Most retirement planners just keep on cranking out numbers way past the point of futility - after running out of money, or way past someone's life expectancy. This is annoying because it's usually just a long list of meaningless negative numbers. You can just enter the age the oldest client will assume to pass away at 85, and/or when the annual numbers on the presentation pages stop, and all of this just clutter disappears at age 86.
You can also tell the retirement spreadsheet to calculate numbers assuming life expectancy is 95, and at the same time tell it to stop printing numbers (on Presentation Pages 3 & 4) after age 90. This is useful in estate planning when you have this scenario, "I plan to croak at age 90, and I want there to be $500,000 left over to give to my kids. How much money can I have to retire on monthly?" It's rare that a retirement spreadsheet will do all of these things easily and correctly without showing pages of meaningless negative numbers.
• You can change the titling on the presentation pages from Current to Proposed with one drop down menu. When you choose "Current," the titles on all of the presentation pages say, "Current Illustration, before recommendations." Choose "Proposed" and the titles change to "Proposed Illustration." Choose "Neither," and all of this text goes away.
You can also change this text on a client-by-client basis, or on a template basis, that will automatically toggle from this input area.
• There are three layers of income goal inflation: Average over the next 1-5, 1-10, & 1-20 + years. Actually there are five, and it's explained in the manual.
These averages are all "implied" meaning when you specify a 2.5% rate over the next 1-5 years, and 3.5% over the next 1-10 years, these are the true rates for each separate period. In other words, changing the first 1-10 year's rate does not affect the other rates. It asks you to fill out these three ranges in the retirement fact finder.
Income goal inflation also can be manually overridden each year as explained above. For example, assume inflation is expected to be 6% for the next year instead of 3%, then back to 3% the next year. You can easily do all of that.
The income goal inflation number on the first presentation page is the average over the next 30 years. This allows control over assumed income goal inflation over three time periods, and on a year-by-year basis.
• You can specify ages that both client and spouse start to collect Social Security retirement benefits separately, and at any year (not just 65 to 72), how much both receive in monthly Social Security benefits, and their annual inflation rates (COLA), separately too.
If someone wants to work past age 72 to get the maximum benefit, they can do that, regardless of when the other spouse started collecting theirs. If someone is disabled at age 50 and is already getting their lifetime PIA (Primary Benefit Amount), you can do that too.
Most retirement savings calculators make both clients collect at the same time, or are limited to ages 62 and 65. This retirement planner gives much more control over Social Security (but RP completely ignores all taxation).
The Social Security Administration has their free online PIA benefit calculator here. It's much better than commercial programs that estimated benefits, because it knows what you've contributed.
• There is a "number rounder" that allows control over the amount of trailing zeros on the presentation pages. This allows you to round everything to the nearest $1, $10, $100 or $1,000.
Other retirement tools just calculate numbers and show them all down to the nearest dollar. RP will do that too, but most people don't want to convey this much accuracy. You can control how many trailing zeros are in all of the numbers on all of the presentation pages with one keystroke. For example, you can change this $123,456 to this $123,000, or to this $123,500.
• Each of the ten assets can have their own unique effective date. This allows you to start an investment bucket's life at any year - before anyone's year of retirement, the same year, or any year after retirement has begun for anyone.
For example, if you're expecting an inheritance at 70 (and you're 50 now and expect to be retired at 65), you can start this new investment's life in the year you're 70. Most retirement tools will only let you start a new investment bucket in the current or retirement year. Some will let you start a new bucket in a future year, but it's rare after retirement has begun. This allows better analysis of more retirement strategies.
• Each bucket has its own year when retirement withdrawals become effective. You can tell the retirement income calculator what year the investment's income stream will kick in. This can be any year, even after retirement has started.
This allows you to model common retirement strategies like tapping non-qualified assets until they're gone, and then tapping the qualified buckets.
Until retirement income withdrawals begin, it grows like you didn't retire, even if you retired ten years ago. This is very powerful because it simulates real life as closely as possible. Most retirement planners make retirement savings pay out only at globally-specified retirement ages, some of the time only at age 65. This retirement strategy lets you control when everything pays out on a bucket-by-bucket basis.
• You can control how much money gets injected into the retirement plan from each investment account by using the annual income manual withdrawal columns (shown on the last column of the asset sheets).
So if you want to buy something big in one-year, and have it paid for by using just one bucket, or want to completely liquidate an account in one-year, then you can do that, and most anything else. RP has limitations on doing this compared to RWR, where you can do anything you want to.
• Each bucket has its own rate of return (compounded annually), which can be manually overridden each year. So if you think an investment will have different rates of return in different years, or even a loss in some years, you can do this.
This is great for limited partnerships or laddered bond portfolios that have staggered maturities (see the asset sheets of the demos). There is a step-by-step example on how to do this in the user's manual.
• Each investment account has a starting year when monthly contributions will start and stop. This can be any year, even a year after retirement has begun. It can be any number of years too, even just one.
You can also manually override every contribution at every year. For example, you can specify $100 monthly contributions to a 401(k) plan (that even currently doesn't exist because you haven't worked there long enough yet), inflating at 2% annually, with no contributions in the 4th year, a $50 contribution the 6th year, and a $200 withdrawal (or loan) in the 12th year. Years before (or after) the manual income withdrawals, it will use the $100 + 2% number as if nothing unusual happened.
This is great when someone will be eligible for a 401(k) plan in the future, and will start contributing to it then (and even better when they contribute in unequal cash flow amounts over any number of years).
So in this case, you'd basically have an investment with $0 as a beginning value this year, and the investment is then brought to life by making contributions in any future year.
Other retirement calculators do this, but RP has all of the automatic features, plus lets you have unfunded buckets, start a bucket and/or make contributions after retirement, and have total control over all annual contributions, rates of returns, and withdrawals.
Important Things RP, and Some Other Retirement Planners, Can Do:
• You can use Excel's built-in "Goal Seek" function to do more "What-if" scenarios than any other retirement calculator. This isn't in the section above because other retirement planning software is also based in Excel.
For example, just click on cell B35 of the Presentation Pages 1 & 2 sheet, then go to Data, What-If Analysis, Goal Seek, Change the "To value:" field to zero, then click on the bottom field, then on any other input cell that will help make the retirement plan reach the goals better (like a rate of return input field of an asset sheet), click OK, and Excel will automatically increase the rate of return until the amount of more money needed shown in cell B35 goes to zero.
Then you'll know the average rate of return needed to reach your retirement goals, assuming all other input stayed the same.
You can use any of the result cells as the key variables in reaching your retirement goals with any input cell using Goal Seek. With this feature, you can do all of the "What If?" and "Goal Seeking" functions that any other retirement software can do, plus dozens more retirement strategies they can't model.
• RP uses a superior Monte Carlo simulation methodology compared to other retirement tools. About that is on the Monte Carlo page.
It has macros that (an Excel macro is a little internal program that takes a few clicks to run that performs tedious chores for you semi-automatically):
• Updates an older version of the retirement planner into the new version, by copying all inputs from old to new. So if you have ten client retirement plans, then it only takes a few minutes to update all of them to the newly updated version.
• Performs the Monte Carlo simulation on the retirement plan.
• There is an input summary sheet that shows most all inputs in one place, to help you be a better retirement planning artist. Once you get the hang of it, then these sheets are where you'll be doing most of your thinking, planning, and strategizing
• Assets can be set up using the "bucket" approach, where you'd input accounts according to what kind of financial asset class it's in. This way you can control where the retirement income comes from several points of view - dividend income, taxes, qualifies vs. non-qualified, asset class, account, etc. This makes depleting one type of asset / bucket / account / tax wrapper before tapping into other buckets easy to model.
• The retirement spreadsheet illustrates a true 70-year window. In other words, it will take a 25-year-old investor up to age 95.
• You can create an unlimited number of current and proposed scenario versions.
• Both client and spouse can have two pensions (or retirement savings with life incomes and no market values like annuitized annuities), and this income can be automatically inflated. Other retirement planner spreadsheets account for pensions too, but RP has four, with only four input fields so it's easy to use, and doesn't use up asset slots.
• The retirement planning software is coded in Excel, so you can change or customize most anything on the presentation pages on a client-by-client, or template basis. You can insert images, make more explanation text, arrows, add more charts which will automatically get data from anywhere else, enable you to easily download investment account values from the Internet, etc.
• Presentation Pages (3 & 4) show the total end-of-year balance of all retirement saving investments combined, and a weighted rate of return on all buckets combined at the end of every year.
This answers the question, "What's the rate of return on my whole retirement nest egg expected to be in every year from now, through retirement, and until I'm 100?" This also estimates what the average rate of return on all retirement savings combined needs to be to have success with a retirement strategy.
It basically figures out the rate of return on all of the investments every year, weights them according to size, and gives an average. For example: If there are two buckets - a $100,000 stock fund at 10% and a $100,000 bond fund at 5%, the average weighted rate of return would be 7.5% (as long as the ending market values were equal at year end). So it displays these averages for all ten buckets annually, every year.
• RP displays life expectancy, using IRS Unisex Mortality Tables, of both people when you input their year of birth. This shows on both the input and presentation pages. Tip: If you see a mortality table that gives different life expectancy ages for male and female, then it's obsolete and shouldn't be used.
• The retirement planner figures out how much more you'll need to invest, at the rate of return specified, to make up for income goal deficits. This is displayed as a lump sum needed to be made today, or a monthly amount needed to fund the deficits, paying from now until the year before retirement.
This is similar to other retirement withdrawal calculators, but RP lets you input an assumed discount rate needed to fund the deficits from now until retirement. The lower and more conservative this rate of return, the higher the additional lump sum or monthly payments would be, and vice versa.
Some retirement plan calculators have been known to make this discount rate the inputted inflation rate. This artificially low rate greatly inflates the needed monthly contributions. So you need to have control over this, instead of having it default to something you don't want and that's incorrect.
• RP has a disclaimer on the first presentation page that disclaims everything to keep everyone out of trouble, which can be changed.
• Each individual investment has its own end-of-year balance column to show its value after contributions and/or withdrawals, then rate of return compounding, are all considered. Then they're all summed on the results page.
• Each investment sheet also shows all of its cash flows over 70 years (and can be printed).
• Retirement savings buckets are segregated by oldest and youngest client to simulate Real World scenarios as closely as possible. For advisors, this resolves the battle of who gets to be client and who "has to be" the spouse.
• Client and spouse names, all investment names, Current or Proposed Illustration, current ages, retirement ages, and calendar years are automatically filled in everywhere throughout the program (the main input page, every asset page, presentation pages, everywhere) for user friendliness.
When there is no spouse (the youngest person in RP), all of the spouse data disappears everywhere for ease of input, use, and maximum white space. This is important because you won't lose your train of thought by having to look for this information in other parts of the spreadsheet all of the time.
• RP is a very flexible retirement calculating program when dealing with client names. Most retirement calculators simply can't handle some client names (e.g., Dr. John A. Smith and Mary Jones-Smith, CPA). RP easily does just about every combination imaginable.
• There are many cell-based error messages that tell you about input errors made, and how to correct them (by telling exactly which cell needs to be changed and how). RP also uses Excel's input validation to help guide input and to minimizes input typos, so you won't have to chase your tail figuring out where you went wrong.
• All input cells are color-coded to make it faster and easier to use. For example, if it's not green then it's not an input cell. There are three shades of green to indicate if an input is just for client, spouse, or affects both. Inputs also change from green to gray after data is input, so you can quickly see if you missed anything. Peach (or pinkish, depending on your Excel version) cells are those that change with input. Gray cells are those that don't change with input. Non-input cells are also usually protected to prevent user errors from destroying the program.
• There is a ~47 page "how to" user's manual that gives step-by-step instructions on how to use the retirement planner. Just like this page, most everything is covered in great detail.
It's an MS Word document, so you can easily search to find things, add notes either in text or in handwriting, print it, etc.
This is one of the few personal finance modules that has a free 30-day trial period.
This is also one of the programs that has the automatic updater spreadsheet, so it's only a few clicks to update from the old to new version (so there's no manual copying and pasting of inputs required, it's all automatic).
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