How to enter defined benefit pension amounts

Question:

I have entered defined benefit company plans for me and my spouse. My report is showing much higher pension amounts.

It seems accurate for current 2016, but much too high starting next year 2017: ($105,620 for 2016, and $178,211 for 2017 combined).

Here is my input:

For me:

• Bridge Pension Payable Until Age 65: $74,655
• Lifetime Pension Payable at Age 65: $61,895

For my spouse:

• Bridge Pension Payable Until Age 65: $31,200
• Lifetime Pension Payable at Age 65: $23,520

Can you help, do you see where I may be entering inaccurately?

Answer:

The lifetime pensions are correct.

For you, the bridge should be $12,760 (74,655 - 61,895). If it's in payment, enter it as a "Former Employer Plan", otherwise there will be accruals between now and retirement. The way you have it should be OK, as you are already 60.

The same comments apply to your spouse, please enter the annual bridge only (31,200 - 23,520).

Note that you can see detailed cash flow tables for each spouses and both combined at the bottom of the 'Accumulations' and 'Income Forecast' tabs.

By: RetireWare / Equisoft On 5:09 PM

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Using RetireWare for fee-only practice

Question:

I'm in the process of trying to scale my fee-only/advice-only planning practice. With enough clients that I'm reaching significant overload, I'm looking into Canadian planning software that I can use for my clients - but not necessarily with my clients.

Answer:

If you use the professional version, you create and control the files and your clients do not have any access.

The collaborative version has more CRM functionality, such as exportable client lists, but not to the extent of exchanging information with billing and other CRM systems. For the collaborative, you can turn off the social media and referral components.

By: RetireWare / Equisoft On 5:06 PM

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Update Wizard

Question:

One question on the “Update” feature.  I haven’t used it yet but just trying to figure out what happens when you use it.  So say you update all the financial information and any changes that might need to be done with assumptions, etc.,  does the program then use those numbers and the date (for example if I updated the financial info for Feb 28th, next week)  and project the year end results for this year based on 10 months of returns / expenses?

If you use the update feature I assume it changes the “date of financial information” to the current month.  If you just go in and make changes to the data then it will be using the previous date for calculations unless you manually change the “date of financial information”.

Basically the update feature seems to be an automated feature that adjusts the date for calculations and allows you to update the financial information.  If you need to do more than that then you can go into the other sections to do that.

So it will use 10 months of data for projection for year 1 when I use March as my start date for instance?

Answer:

What you said is correct. The Update Wizard groups all main and changing inputs in one location (mostly asset values), and updates the date of calculation automatically.

If you use the Detailed or Quick retirement calculations, you must change the date manually.

If you go through the Update Wizard, you can always go to the main program at any time and change the date back if you wish. It is not cast in stone. However, it's best to align the date with the date of the most current account balances.

The projection for year one is for 10 months, and all other years are twelve months, except the last. The last year, i.e. grimly called "year of death", is from January 1 to the birthday month.

By: RetireWare / Equisoft On 5:03 PM

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Purchasing an annuity with RRSP

Question:

How do I purchase an annuity in 2020 with my my RRSP?

Answer:

There is a section in 'Registered Investments' on the 'Financial Information' page where you can select to purchase an annuity with the proceeds of your RRSP.

By: RetireWare / Equisoft On 5:01 PM

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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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MonteCarlo calculations

Questions:

I have a dilemma. Hopefully you can help. My investment adviser recently provided me with a retirement plan using another product.

Income, future assets etc. were comparable to what I calculate using RetireWare.

However, for the same scenario, RetireWare is indicating a 100% probability of success. The competing software shows a 14% failure. The adviser recommends up to 10% failure as acceptable.

I assume that both programs should yield generally comparable Monte Carlo results?

Answer:

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 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, since this is the product of an advisor, there is an incentive 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 favourable, 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.

By: RetireWare / Equisoft On 4:57 PM

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A few product questions

Question:

I have a few questions about some inputs that I cannot resolve on my own. I am a new subscriber but I think I have everything figured out now except the below.

Is there a way to model a spousal loan? for example, if I have lent my spouse $1 Million at 1% until death there is a $10,000 deductible interest expense for one and interest income for the other.

I don't quite understand the "dividend yield" and "increase in earnings" fields in the economic forecast. If I input all the nominal equity asset class returns as 7% for example, what happens when I manipulate the other two variables? it seems to effect the Monte Carlo simulation significantly so I want to be more certain as to their meaning.

For the Monte Carlo simulation, how conservative are the input volatility? I am trying to get more comfortable on the simulation and how I manipulate the variables to get an 85% chance of success or a 35% chance (or everything in between).

Answer:

To model the loan, you could add an 'Other Income; of $10,000 per year for you, and a $10,000 interest expense on her budget.

The "dividend yield" adds a constant dividend on the share of assets invested in equities (based on the profile selected in 'Asset Mix for Projections' on the 'Options' page. So if you select 2% and have $100,000 in equities, it will add $2,000 in the following year of dividend income taxed assuming they are eligible dividends. In future years, it will be based on the market value of equities, so as they grow, so does the dividends.

The "increase in earnings" field in the economic forecast is an assumption for annual wage increase. So if you are not retired and earn $100,000 per year with a 3% annual increase in earnings, the program will calculate earnings of $103,000 next year and increase it by 3% each year up to retirement. This is the only purpose of this assumption. In turn, your annual earnings are used to estimate the CPP.

The increase in earnings and dividend rate are not subject to volatility in the simulation. In other words they are assumed to be constant.

The default volatility for each asset class are based on historical experience adjusted to recent trends. In a nutshell, cash and fixed income are assumed to be less volatile than historically, and equities are in line with their historical volatility (based on the last 20 years), with International equities experiencing the most volatility. These are revisited annually.

By: RetireWare / Equisoft On 4:55 PM

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Functionality of RetireWare

Question:

I am interested in a subscription but before doing so wanted to know the extent of your program - is there a 30 day trial version.

I tried another product but the program was not detailed enough. Does your software allow you to enter your lifestyle needs item by item. e.g., housing expenses, living expenses including food, entertainment, travel , transportation expenses etc.

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 to 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?

Answer:

Here are answers to your questions:

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.

As opposed to a free trial, we offer a 30-day money back guarantee. If you're not satisfied with the product, we will refund your credit card in full - no questions asked. Simply email us and request a refund and we will oblige within 24 hours.

By: RetireWare / Equisoft On 4:51 PM

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Saving in a holding company

Question:

You can include the value of a business from which you can pay dividends. You will find this on the 'Other Assets' tab on the Financial Information page. I'm not sure if this addresses what you want to do with a holding company.

I do have a question on how to optimize the plan. I know we have lots of extra cash flow but it doesn't appear to be putting any money into the TFSA or RRSP or Non-Registered where is the excess cash flow going? Can you please advise how I tell the system to "auto direct budget surpluses to savings"?

Answer:

Please note that before retirement, extra cash is assumed to be spent.

After retirement surpluses are saved to the non-registered account and available to cover shortfalls in future years.

If you have excesses before retirement, manually increase your annual savings amount and it will be directed in the RRSP, TFSA and non-registered according to the savings rule you selected on the Forecast page.

By: RetireWare / Equisoft On 4:45 PM

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Pre-retirement Planning

Question:

I do not plan to retire for another 10 years. So 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 11:59 AM

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Survivor pension benefits

Question:

I have a 57 year old receiving roughly $10,000 of QPP survivor benefits and roughly $1,200 annually of private pension survivor benefits. Keep in mind the client will begin receiving regular reduced QPP retirement benefits sometime after age 60.

How do I enter these amounts?

Answer:

I've looked briefly at the plan and have a few comments.

1. You can put the $10,000 of QPP survivor benefits in non-registered or TFSA (I assume it's a one-time lump sum and has been paid). If it's coming in the future put it as an 'Other Asset' in the Financial Information page.
2. You have $1,680 annual pension of $1,680 at 65, with an actuarial reduction to age 50. You may want instead put this as a 'Pension or Annuity Income from Registered Pension Plan' on the Financial Information page. 
3. You have QPP starting at 65 not 60. Enter the age you want the QPP to start.
4. In 'Asset Mix for Projections' on the Options page, you have the asset allocation percentages for non-registered adding up to 110%. It should add up to 100%.

By: RetireWare / Equisoft On 7:21 PM

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Asset mix profiles

Question:

What are the asset mixes used in the historical returns application for conservative, moderate, balanced, growth and aggressive. I an an investment advisor and results are difficult to explain without some specific parameters. I've also found that the more I get into the program, the more questions I have. Is there any documentation dealing with assumptions etc rather than just data input. For example, I have been trying to determine how to input how to max out a TFSA in later years from the sale of a principle residence. Any help is appreciated,

Answer:

You will find the asset mixes on the Investor Profile tab on the Review page of the RetireWare application. There is also information in the help files.

The software automatically deposits part of the proceeds into a TFSA if there is contributions room, and any excess goes to the non-registered account.

There are a few tutorials you can view on our YouTube page:

https://www.youtube.com/user/retireware

By: RetireWare / Equisoft On 11:53 AM

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Defined Benefit Accruals

Question:

I tried to input my husband's pension, which starts collecting on Jan 1, 2022. I am entering the lifetime amount and the bridge benefit from his pension statement, which are $32,484 and $10,218, respectively. However, when I put this into the input page, the output I get is far more than these numbers.

Answer:

If it is a defined benefit pension from a current employer, the program estimates future accruals between now and 2022, so the bridge and pension include years of service all the way to 2002. If you want the amounts unchanged, enter them as a defined benefit pension from a former employer.

By: RetireWare / Equisoft On 11:46 AM

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RESP

Question:

I have a client who would like to input their RESP assets and also build into their plan the expense they will incur to put their two children through university so that the financial impact of this is built into their retirement plan.

Answer:

First, on the File Manager page, go to the Applications tab and select 'Education Planning'. This will help determine the annual amounts that need to be saved toward education.

Then, go in the RetireWare file of your user, and on the Finances menu, select 'Budget Information'. You can Enter the planned annual savings and existing balance in Non-retirement Savings and Assets under RESP.

The savings will show in the income forecast and in the (pre-retirement) budget on the Review page. It may be a good idea to complete the information in 'Pre-retirement Expenses' to get a complete budget.

By: RetireWare / Equisoft On 11:45 AM

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Asset Mix Changing Over Time

Question:

I would like to have more detail about the change in Asset mix when I select 'Move gradually to conservative portfolio until 80'.

Answer:

The amount held in fixed income will increase gradually each year until it reaches the amount of the conservative profile. Thereafter it will be assumed that the funds are invested in accordance to the conservative profile. You will find the asset allocation of the conservative and all other profiles in the help files.

By: RetireWare / Equisoft On 11:43 AM

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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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Viewing Detailed Cash Flows

Question:

On the future assets table in the report, the registered assets at age 94 (year 2054) for the surviving client are $240,979.

At that age the client is required to withdraw a minimum 20% which would be $48,200. The investment return is a net 5% or about $12,000 maximum yet the client’s registered assets at the start of the next year are $217,683, which is about $13,000 more than the math would indicate it should be.

The cash-flow forecast for age 94 (2054) shows only $31,711 being withdrawn from the registered assets of $240,979 which is 13% and not 20% as required by CRA. Is there an explanation for this?

Is there something else in ‘registered’ other than a RRIF or a LIF that might distort the figures, like a TFSA?

Answer:

For each spouse on the 'Accumulations' tab on the 'View' page there is at the bottom under 'Your Future Assets - Detailed Data Table' links to pop-up tables that provide the detailed cash flow. You will see that the withdrawals are 20% at age 94.

For investment income, it will be based on the rates of returns selected in the 'Economic Forecast' page (less investment fees), weighted in accordance with the basis selected in 'Asset Mix for Projections' on the 'Options' page.

The summary tables on the results page combine TFSA, LIFs and RRIFs.

The Accumulations and Income Forecast tabs have detailed pop up cash flow tables that show all cash flows.

By: RetireWare / Equisoft On 11:41 AM

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Future Income Tax

Question:

I ran the model and the level of income taxes seem low for the amount of income each year in the future.

With a  gross incomes of around $80,000, it shows about $10,000 in taxes for example.

Answer:

Income taxes may seem low but remember these are "future dollars", and the income mix may be from capital withdrawals from a non-registered account, investment income which is taxed a lower rates if it's from realized capital gains and dividends.

By: RetireWare / Equisoft On 11:38 AM

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Expected Investment Income

Question:

How are investment income calculated for the projection?

Answer:

Registered funds are projected in the future based on the rates selected in the Economic Forecast on the Forecast page, and the asset allocation selected on the Options page.

If you base your projection on the current asset mix, then you should enter the asset allocation of registered assets by clicking the blue icon next to the 'Registered' balance on the second tab of the
Financial Information page. In setting your rate for fixed income consider that part of the assets will earn 8% on the mortgages and part will earn a lower rate for mutual fund investments, bonds, etc.

Also recognize that the expected rates may apply for 30 to 50 years in the future, so it is best to use a conservative approach and consider that rates that may be guaranteed for
the next few years may not apply for the entire life expectancy.

By: RetireWare / Equisoft On 11:37 AM

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