Tuesday, November 25, 2014

Retirement Savings Marathon

The magic bullet

We try to learn about investing and become better at it, but too many of us cannot overcome being financially challenged, or more precisely being comfortable making investing decisions. To boot many have no time or interest in the topic.

To alleviate this state of affairs, the Canadian Government established a federal Task Force on Financial Literacy. The task force made several recommendations for improving financial knowledge and these will take time to be adopted by the public.

What should we do to improve our odds of success?

Our biases

Behavioural science tries to understand social, cognitive and emotional biases that affect and influence economic decision-making. When it comes to money decisions, we don't act in a rational way.

There are several factors that play against us:

  • Overemphasizing immediate rewards at the expense of long-term needs,
  • Procrastination and inertia: delaying decision and a difficulty to change course,
  • Preferring the status quo to making active decisions,
  • Complexity of making retirement planning decisions far into the future, and 
  • Choice overload: the sheer volume of choice causes "paralysis analysis".

Meeting the challenge

Maybe we can learn from how employers and stakeholders worldwide have met the challenge of encouraging pension plan members to save for their retirement. I am referring here to capital accumulation plans such as defined contribution pension plans or group RRSPs. One big problem has been the large number of employees lacking any interest in their pension plan and more generally the task of saving for retirement.

This negatively impacts the level of contributions and investment returns and is disastrous to retirement income adequacy. Too many employees  commonly continue to contribute at the rate they first chose when they joined the plan and remain invested in the portfolio they were defaulted into initially.

So the industry addressed this apathy by adding automatic features to savings plans: enrollment, escalation and investing.

With "auto-enrollment", employees don't decide whether or not to enroll in a plan, they are automatically enrolled but have the right to opt out. This address the concern of employees never joining a plan and not bothering to save at all.

"Auto-escalation" adds automatic increases to the contributions rate over time. An employee who joins the plan starts contributing at a low rate, and as time goes on, the contribution rate slowly rises over time until it reaches a level that improves the chances of providing a reasonable retirement income. This concept helps employees "ease in" to the plan in a financially manageable way, while maximizing contributions as retirement becomes closer.

The other popular feature is to "auto-invest" the contributions. Instead of defaulting to money market funds, which cannot provide the investment returns required to accumulate an adequate retirement nest egg, the default fund where contributions are invested is a "target date" fund appropriate to the plan member's investment horizon. For example, these funds invest younger employees in higher-risk portfolios that automatically glide toward a more conservative profile over time.

These features are beneficial in many ways. First, it gets employees to develop solid savings and wealth accumulation habits. Second, it reduces the likelihood of getting extremely low investment returns and making them disengaged with the daunting task of saving for retirement. Third, experiencing volatility in the early years - when assets are low - teaches the discipline of "staying the course" and riding fluctuations with a low impact on the long-term outcome.

Being young

Younger savers have very different priorities, and saving for retirement isn't at the top of their list. Retirement is a lifetime away, and getting started in the housing market, paying off debt, travel, sports, hobbies and having a safety net for emergencies leaves little room for the retirement planning savings marathon.

But living in the present, where spending trumps saving, does have very real implications on the ability to retire with adequate income. Building savings to provide retirement income for 30 or more years requires patience and discipline, and it starts with regular ongoing monthly contributions that increase over time and are invested in a portfolio appropriate for the investor's risk tolerance and investment horizon.

These auto-features are designed to address the shortcomings identified in behavioural science and steer investors in a direction that serves their long-term interests.

We can all learn from this by adopting these strategies and forcing ourselves to act rationally with our economic decisions.

Thursday, November 20, 2014

What Makes RetireWare Different from Other Products


I am looking at getting a planning software that helps calculate retirement but also shows clients their net worth. Why would I use RetireWare rather than other products? Which version would you suggest I use?


RetireWare is unique in the following ways:

  1. Focus on long-term planning: this product is to plan the financial aspect of retirement.
  2. Sophisticated mathematics: detailed projections of assets and income, accurate income tax calculations, Monte Carlo simulation, odds of success, risk management (assessment of post-retirement risks such as longevity, inflation, market returns, sequence of returns, long-term care needs, etc.).
  3. Five components: detailed retirement, quick retirement calculation, investor profile, budget and net worth.
  4. Data entry: easy and quick data entry, organized logically using a clean tab interface.
  5. SaaS: web-based software as-a-service.
  6. Collaborative: you can provide account access to your clients. They get a simplified version and can view their plan online and enter their own data.
  7. Engagement: although you can generate reports with RetireWare, it's more engaging for users to access their account and see their plan online. 
  8. Easy to update: by regularly updating (using a quick update wizard), you can keep the plan fresh and provide a road map to retirement to your clients.
  9. Social media: links to allow users to "spread the word" about you on their social networks.
  10. News: you can broadcast messages or news to your user group (such as market commentary, current events, upcoming seminar, reminders, etc.) that they'll see when they login to their account.
  11. Customization: when your users login, they'll view your profile that can be customized with your logo and colour scheme.
  12. Design: clean design and user interface (see our tutorials: http://www.youtube.com/user/retireware).
  13. Results: detailed results with numerous charts and tables.
  14. Dashboard: once you do a plan, you get a dashboard view of the results.
  15. Other tools: over a dozen other stand-alone calculators.
  16. Help: comprehensive help and product support blog.
  17. Canadian-based: federal and provincial income tax, RRSP, TFSA, jurisdiction-specific LIF, pensions, etc.
  18. Data security: no possibility of data loss or breach on local PC; the data is stored securely in our encrypted database.

If the collaborative features are something you would use, then I would recommend the Professional Collaborative version, otherwise the Professional version that gives you 50 files, but no collaborative features.

Monday, November 10, 2014

If You Want to Learn About Products from Competitors

There are very few retirement planning software products for individuals, but there are a few for financial advisors.

AdvisorTek maintains a comprehensive directory for the latter. The directory lists software and technology providers for corporations and advisors in the financial services industry.

Note that some products are for Canadians and others for US users.

Here's the link:


RetireWare is under our company name: Apeiron Software Limited.

Activity Report for Professional Collaborative Version


Just curious if there is any way to see if a client has logged into their file or are using it at all ?


After logging in, click 'Network' on the left toolbar, then click 'My Network'. At the bottom there is a user list with some basic information.

Then click 'Activity' on the same toolbar. On the 'Activity' tab, toward the bottom of that page there is a section called 'Recent Activity' that shows a list of new users and recent visitors.

Canada Pension Plan Estimate


I am getting a CPP payout of $0 in my detailed cash flow forecast. I suspect it may be because I am already (early) retired (my spouse is still working) and I have not entered any employment income in the setup data. But I have paid in at the maximum level for 27 years.


If you check Already Retired in Financial Information, you can enter annual earnings and it will only be used to estimate the CPP.

Your other option is to enter the actual CPP you expect to receive and the age of commencement in Government Pensions on the Pensions page.

Assets and Future Income


I do not plan to retire for another 10 years. Does the software allow me to input my current income details (indexed for inflation) and asset (residence, RRSPs, investment portfolio) and liability balances as well as current expense budget (indexed for inflation) to see how I am trending to reach my retirement goals?


Yes you enter your income before retirement and it will increase each year in line with a wage increase assumption. You can also enter all assets and liabilities (in particular mortgage balances on properties and remaining term).

For the budget, you can complete a pre-retirement budget and a post-retirement budget separately. Your post-retirement budget will be used for setting your retirement income goals (and is indexed as well to retirement and each year thereafter).

Lifestyle Needs


Does RetireWare allow you to enter your lifestyle needs item by item. e.g. housing expenses, living expenses Including food, entertainment etc etc), travel expenses, transportation expenses.

Then does it allow you to enter RRSP and TFSA balances and unregistered investment accounts separately for myself and my spouse and then set different returns for different investment products i.e. cash (1%), bonds (2%), Canadian equities (5%), foreign equities (7%).

Does it allow you to set annual contributions to the RRSP an TFSA and then set dates when withdrawals may or may not take place.

What about personal residence and recreational property?


1. You can base your income goal on a detailed post-retirement budget that includes nearly 50 different items.

2. balances are separate by type of account and include RRSP, TFSA, non-registered and locked-in, also separated for each spouse.

3. You can customize expected investment returns for the following asset classes: cash, fixed income, Canadian equity, US equity and international equity. The program suggests defaults as well.
The expected return will depend on the asset mix selected for the calculations.

4. You formulate an annual savings goal and select one of several savings rules, such as maximizing the RRSP, then contributing to the TFSA. RRSP and TFSA limits are applied and carried forward.

5.  Withdrawals are driven by the retirement income goals. After taking into account annual income from public and private pensions, shortfalls are funded from non-registered assets, TFSAs, locked-in assets and the RRIF.

6. You can also include the disposition of the personal residence, other property, business or other future assets in your plan.

Income Goals and Rates of Returns


I just have a couple of questions before I start rolling it out to  my clients.

1. When it asks for Annual retirement objective … choice # 2 – total dollar amount:   Will this include all sources such as CPP , OAS , and then net of tax if indicated below? Or, is this just going to draw from one’s own savings ?

2. Standard forecast on rate of return: what rates are used? How does that work?


1. The retirement income objective is how much you want to have each year during retirement. The income forecast tries to meet the goal with CPP, OAS, other income or company pensions, and make up any gap from invested assets.

Note that the retirement objective is in terms of "today's dollars". So if you enter say $50,000, and retirement takes place in 10 years, and inflation is 2%, the actual retirement objective in the year of retirement will be 50,000 x 1.02 ^ 10 or $60,949.

2. The standard are the default values shown in the Custom Forecast.

  • Cash and equivalents: 2.25%
  • Fixed income: 6%
  • Canadian equity: 7%
  • US equity: 8%
  • International equity: 8%

The above are exclusive of investment management fees.

The standard also has values for inflation, real estate and wage increase, also shown in the default values.

MonteCarlo Calculation


I have a dilemma. Hopefully you can help. My investment advisor recently provided me with a retirement plan using Naviplan. Income, future assets etc were comparable to what I calculate using RetireWare.

However, for same scenario Retireware is indicating 100% prob of success. He is indicating 14% failures. - He targets 10% max as acceptable.

I am not sure what he is using for Retirement Goal Tolerance - rest of the variables look comparable.
 Based on what it has taken to get to this point, I don't have a lot of confidence in his results and I would not bet my life on my results.

I assume that both Naviplan and RetireWare should yield generally comparable Monte Carlo results?


Please note that there is a setting in the Options page that counts small shortfalls as a success, so by setting the threshold to $0, the probability may go down.

Also note that Naviplan probably uses a different approach for their simulations. For example, they may use only one expected return and volatility, or maybe only fixed income and equities for the asset classes. In any case, with such calculations resting heavily on assumptions and methodologies, one may view a 14% failure as equivalent to a 10% failure. Also, an advisor will tend to err on the conservative side since your success is at stake, so he may be extra careful to recommend higher spending.

One way to assess your plan is to look at the various results produced by the software. You have the odds of success, a deterministic projection based on your selected expected returns (or RetireWare's standard, which is fairly conservative). You also have a projection assuming you earn poor investment returns in the future. Then there is the risk analysis that "stress tests" the plan against the main risks under various economic conditions.

Our idea in making decisions when facing an uncertain future is to take a "holistic" approach. If you see that most indicators are favorable, then you probably are OK.

One last thought. If you find you experience lower than expected returns or higher expenses after a year or two, you are able to correct the course by monitoring your plan and adapting your
spending going forward to set you back on solid footing to meet your expenses throughout retirement.

Mac Compatibility


 Please confirm that your software will run on a Mac book Pro laptop Space running the latest Apple software.


This is a Web-based application that runs from any of the main Internet browsers, including Safari running on a Mac.

Cash Flow Forecast


In the Cash Flow Forecast Detailed Data Table, there is a column of data called "Retirement Objective Net". From what I can see it includes the Post retirement expenses that I setup along with
special expenses according to the parameters that I setup in the "Retirement Income Target" in the Forecast page.

However I can't seem to reconcile the data in that column against the budget...it is always higher. Can you tell me what data is included in that Retirement objective Net column


The expenses you entered are in "today's dollars". So if it's payable in. say, 10 years, the annual expenses are increased by the rate of inflation applicable during that period.

This is to ensure that your assets can pay for the expenses when they are incurred in the future. Look in the Help file, under Forecast Menu | Retirement Income Target |  Adjustments to Retirement Income.

There is more information and an example about the impact of inflation in the Help section.

Asset Allocation Used for the Calculations


Under Asset Allocation it states “The Investor Profile Questionnaire established that the following portfolio: Security might be the most …”

Do I assume that RetireWare used a “Security” mix for my investments?


The calculations use the asset allocation basis selected on the Asset Mix for Projections tab on the Options page. You can select an asset allocation based on one of the profiles, the current asset mix, or your own custom allocation.

Use of Personal Residence for Retirement Income


Under Sources of Retirement Income it has “yes” next to Personal Residence even though I indicated for both my wife and me “Never” under “Financial Information – Principal Residence – Sell Principal Residence.”  Are the income projections using the value of our personal residence or not?


Since you selected 'Never', there will be no sales taking place. If you had selected a year for the sale but left the personal residence unselected in Sources of Retirement Income, then the funds would not be used for retirement.

Collaborative vs. Professional Version


My understanding of RetireWare is that the Professional Version is used by the financial professional to prepare a retirement plan for the client. The client is then not able to access the plan to update its progress. Is that correct?

My understanding of the Collaborative Professional Version is used by the financial professional to prepare a retirement plan for the client, but the client is then able to access the plan via the web to update its progress and view the information. Is that correct?

In your experience, given that my above understanding is correct, which of the above approaches is the one that has met with the most success?


Your understanding of the difference between the Professional and Collaborative versions is correct.

With RetireWare, you will get a financial plan for retirement that includes a cash flow forecast, odds of success, assessment of the exposure to each of the main post-retirement risks. The output is the same regardless of the product between the Pro and Collaborative version.

Note that with the Collaborative version your users get a simplified version and reports in order not to overwhelm them with too much complexity and details.

For a recommendation, the Pro version is more suitable if you want only to create reports and transmit a PDF to your clients. If you want to build a user base from online referrals, then the Collaborative version is the way to go.

Education Savings


I'm not sure where I enter my RESP contributions.. Can you please help?


You can enter RESP contributions on the Budget Information tab on the Pre-retirement Budget page. There is also a stand-alone RESP planning tool on the Applications tab on the main page.

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RetireWare is a Web-based risk management and retirement planning software for individuals and financial advisors that's easy-to-use, full of rich visuals and comprehensive analysis. Try today and take advantage of our unconditional money-back guarantee. Know how much retirement income you can have. Build a plan and know where you stand.

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