Determining Optimal Savings

Question:

I modified our "Annual Amount Saved" until the combined (ie. me and my wife) Summary said that our assets will be sufficient. Then I changed our retirement ages to 65/55 and played with the "Annual Amount Saved" again until I saw that our assets are sufficient. Is this a good way to figure out how to make the retirement plan work?

Answer:

Yes, you go to the Forecast page and on the Savings tab to increase your annual savings. Then switch to your wife's view and increase her savings. Click the Refresh button on the View menu to see your revised results.

Even with higher savings, you may need to reduce your budget slightly or plan to retire later (even one year may make a good difference). But first try to save more and it should take you close to having enough funds for retirement.

if you achieve better than expected returns you can then periodically revise your plan as you get closer to retirement and have greater clarity on the feasibility of retiring at age 60.

Be sure to verify that you are not hitting the maximum contribution limit in 'Savings Plan' on the Forecast page. For example, if it's set at 30% of income and you earn $80,000 per year, the program will try to find the required savings, but only up to $24,000. You can this this maximum up to 100% of income. But as I recall, you are in a higher salary range, so what you are stating is correct.

By: RetireWare / Equisoft On 11:01 AM

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Quick vs. Detailed Plan

Questions:

In the Quick plan:

1) is the Retirement Income Target gross or net?

2) I don't see where I can input existing locked-in money. Can I?

In the Detailed plan:

1) in the Forecast/Economic Outlook/Advanced/Annual Investment Management Fees, how can I bypass the fees?  Do I need to put them all to 0? It's because the planning I do is based on returns net of fees.

2) in the Pensions/DC/Group RRSP the Asset Allocation defaults to 100% cash, but If I choose a Profile in the Options tab will it over-ride this default?

3) in the Risk Analysis/Estate Objective, there is an amount of $50,000 as a default.  Is this automatically included in the calculations, so do I need to change it to $0, or under what circumstances is it included in the calculations?

Answers:

Quick:

1. It is Gross.

2. You can only do this on the Detailed user interface.

Detailed:

1. Yes, put them at 0%, otherwise they will reduce the gross returns.

2. Yes, the profile option applies to all types of funds.

3. It applies the risk scenarios and looks if there will be $50,000 or more for the estate. The ratio of successful scenarios over all scenarios is the success rate for the estate objectives. If you put $0, then all will be successful.

By: RetireWare / Equisoft On 10:57 AM

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Asset allocation and sources of income

Questions:

Looking at the Report I have a few questions:

Under Asset Allocation it states “The Investor Profile Questionnaire established that the following portfolio: Security might be the most …”  Do I assume that the RetireWare used a “Security” mix for my investments listed under Finances or will it use the “Selection of Rates in Economic Outlook?”  I deliberately left all RRSPs in the “Finances – Registered Investments – Market Value” as “Cash” so the projected growth would utilize a low return (2.25% as noted on the Assumptions and Disclosures).

Under the “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?

Answer:

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.

Since you selected 'Never', there will be no sale 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.

By: RetireWare / Equisoft On 4:59 PM

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Cash Flow Forecast

Question:

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 on the "retirement income target" tab.

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 the (net) retirement income objective column?

Answer:

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.

By: RetireWare / Equisoft On 4:58 PM

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Retirement income goal and rates of returns

Question:

As I am new to this program, I just have a couple of questions before I start rolling it out to  my clients.

When it asks for Annual retirement objective (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?

Standard forecast rates of returns: what rates are used? How does that work ? The other two choices (Historical and Custom ) seem straight forward.

Answer:

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.

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..

Note that these do change each year based on historical averages adjusted for current trends.

By: RetireWare / Equisoft On 4:48 PM

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Increase in Retirement Expenses

Question:

My client is considering selling her home in a few years (let's say 6 years from now when age 75) and we're projecting till age 90. How do we reflect a increase in her cash needs for the remaining 15 years of her life (75 to 90).

I can see where to sell the home, but where can I input a monthly increase in expenses of $500 per month starting in 6 years from now?

Answer:

On the Forecast page, you can enter on the 'Retirement Income Target' tab under 'Special Expenses' a periodic expense starting say in 2021, with frequency 1 (meaning once per year) of $6,000.

Alternatively, on the same tab under 'Advanced' you can increase the budget in percentage terms . If you use this approach, determine the percentage that $6,000 per year is to the retirement income goal.

By: RetireWare / Equisoft On 11:42 AM

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Spending Projections in Retirement

Question:

When doing long term income projections, is it possible to drop spending by say 25% at age 75 and then continue adjusting that revised spending by inflation rather than having spending continue along the same rate?

Answer:

Yes, go to the 'Forecast' page and on the 'Retirement Income Target' tab, and click 'Advanced'.

You can increase or decrease retirement income at three points during retirement and income continues to be adjusted with inflation throughout.

You can also add one-time or recurring special expenses in your retirement income goals (such as car purchase every few years, trips, weddings, etc.).

By: RetireWare / Equisoft On 11:32 AM

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If You Are Retired

Question:

What use is RetireWare for those people already retired?

Answer:

As a retired person, you use RetireWare to set and monitor your spending levels such that it will last a lifetime. Also, if you have poor or excellent investment returns can impact future expenses, and when unforeseen expenses or life changes occur, you revisit your plan and adjust your goals.

By: RetireWare / Equisoft On 11:23 AM

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Post retirement budget

Question:

When I create the post retirement budget selecting one budget for both spouses, it doubles the budget requirements. Our expenses are around $47,000 per year. when I finish the plan, its has our budget at over $90,000.

I've played around quite a bit with this and can't find a way to get it to use $47,000 total for both.

Answer:

You must select 'Based on Expenses' for the retirement income objective on the Forecast page.

Otherwise, it's using a percentage or dollar-based income goal, not the separate or common budget.

By: RetireWare / Equisoft On 7:11 AM

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Assets and Future Income

Question:

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?

Answer:

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).

By: RetireWare / Equisoft On 8:17 PM

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Lifestyle Needs

Questions:

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?

Answers:

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.

By: RetireWare / Equisoft On 8:16 PM

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Income Goals and Rates of Returns

Questions:

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?

Answers:

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.

By: RetireWare / Equisoft On 8:15 PM

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Cash Flow Forecast

Question:

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

Answer:

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.

By: RetireWare / Equisoft On 8:10 PM

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Special Expenses

Question:

I have been using RetireWare to elaborate several files to plan our retirement. I have been trying to include the sale of our actual house in two years, for example, and buy a new one at a higher price in the same year.

I cannot find any place in any of the topics where such a financial exercise is possible. Il could also be the sale of a house and the purchase of a sailboat or a motor home or whatever and its sale several years later.

Maybe another way to look at it would be to add a section where we can simulate an important withdrawal from a particular sources of cash. There is already a section where you can indicate a source of additional assets.

Answer:

Please note that in the Forecast page you can enter special periodic expenses on the Retirement Income Target tab. If it is a one-time expense, enter "0" as the frequency. Frequency of 1 means annual, 2 every two years and so on.

These can be used for one-off items purchased as part of your retirement budget.

Also, in 'Budget Information', you can set up a short-term or medium-term non-retirement savings plan for acquiring a new asset or purchasing some expensive goods such as a boat.

If you want to model the purchase of a more expensive home, keep the current residence and add the difference as an 'Other Property' on Financial Information page. For example, if your house is worth $500,000 and the next house is $600,000, enter $100,000 as 'Other Property' (and the extra mortgage if any).

By: RetireWare / Equisoft On 10:41 AM

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Pre-retirement Budget

Question:

When doing a pre-retirement budget for a couple I enter the budget under one of the individuals and it still shows a budget for the other spouse. Why?

Answer:

For pre-retirement, each spouse has their own budget relative to income. In your case, you put the budget under one spouse and have not completed a budget for the other spouse.

In cases where there is no budget, the program assumes a default budget equal to after-tax income less savings. So for pre-retirement, it's best to complete a budget for each spouse commensurate with their income, or complete no budget for either spouse.

By: RetireWare / Equisoft On 10:40 AM

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Budget Statement

Question:

When I have $0 in expenses for Spouse 1 and 2 in the pre-retirement budget, the report takes the Net Income amount and puts it in the Total Expense amount.

Answer:

In cases where you  and your spouse are not yet retired, if there is no budget, the program tries to create a budget based on net income, assuming all funds are spent or saved.

In other words, the "budget" for someone without a budget is:

expenses = gross income - taxes - annual savings.

By: RetireWare / Equisoft On 2:40 PM

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Retirement Income Objective

Question:

I plan to retire in 2018. Why is the retirement income objective set at about $110,000, when I entered only $50,000 for each spouse?  Is this for inflation?

Answer:

Yes, numbers show in nominal dollars, the $110,000 represents $100,000 in today's dollars.

By: RetireWare / Equisoft On 2:37 PM

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Retirement Budget

Question:

 I now signed-up for your new web based application and my first impression is quite positive.  A couple of points though:

1) The software seems to ignore the post retirement budget data I’ve entered for my wife and I.  The budget statement is empty.

2) Can the interest rates be adjusted by the user or are they fixed.

Answer:

1. Have you selected both of your retirement income goals to be based on expenses in 'Retirement Income Target' in the Forecast page? Also, if you're not retired, the budget statement will be a pre-retirement budget. The post-retirement budget will show in the statement if you are currently retired.

2. If you have the DIY version, you can adjust the all rates and investment returns, and have expanded results with Monte Carlo simulations and risk analysis.

By: RetireWare / Equisoft On 9:48 PM

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Post-retirement Budget

Question:

I am retired and the software seems to ignore the post retirement budget data I’ve entered for my wife and I. The budget statement is empty.

Answer:

There are two budgets: pre-retirement and post-retirement. The budget that applies in your case is the post-retirement budget.

Since you're retired, the post-retirement will show as the budget; if you're not retired, the pre-retirement will show in the results.

Ensure the retirement income goal is "based on expenses", otherwise it will not use the post-retirement budget as the retirement income goal.

By: RetireWare / Equisoft On 6:27 PM

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Retirement Income Objective

Question:

I have inserted a retirement expense objective of $33K. The client is 63 years old and retired with only an RRSP portfolio to draw from.

For some reason, in the first year only, the objective is doubled to $66K and thus there is a large withdrawal from the registered portfolio.

How do I fix this issue?

Answer:

The first year of retirement may be only for a few months. So the objective would reflect employment income up to the month of retirement, and a portion of the $33,000 for the month remaining in the year. Also, when the retirement year is in the future, the objective of $33,000 is in terms of "today's dollars", which means it will be indexed between the current and retirement year.

By: RetireWare / Equisoft On 3:41 PM

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