Enough to Live On (2011)

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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steves
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Re: Enough to Live On (2011)

Post by steves »

adrian2 wrote:
steves wrote:I didn't say that was all I used.... div tax credit, age deductions, loan deductibility, OAS/GIS clawbacks, capgains, etc.... these all come from other sources.
Still quite far from being complete, for each province and situation. How does your compiled code (in MB) compare to TurboTax? Of course they have some frills included, but still I seriously doubt your code can handle every line from a tax return.

To give you just one simple example from a forum member, the bad interaction between deductible student loans or tuition credits and Canadian dividends.
Turbotax is not the same kind of program. They have all the time in the world to include the infinite variations of tax minutia. They don't do an investment-based cash flow projection out in time, including indexed brackets for example. Turbotax is a one time tax return preparation program. In fact, at one time Intuit had a cashflow projection (Greenpoint-Profile). They had to withdraw it, I believe, because it had to use an average/approximated tax calc. Because they were the same guys that built T1 (turbotax-type) software, they were uncomfortable.
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adrian2
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Re: Enough to Live On (2011)

Post by adrian2 »

steves wrote:Turbotax is not the same kind of program. They have all the time in the world to include the infinite variations of tax minutia.
My point is (and I guess Bylo and maybe others would agree) that it's misleading to provide any more than two significant digits of precision when you don't handle all the intricacies of the current system, never mind unknown changes to come in future decades.
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Re: Enough to Live On (2011)

Post by NormR »

adrian2 wrote:
steves wrote:Turbotax is not the same kind of program. They have all the time in the world to include the infinite variations of tax minutia.
My point is (and I guess Bylo and maybe others would agree) that it's misleading to provide any more than two significant digits of precision when you don't handle all the intricacies of the current system, never mind unknown changes to come in future decades.
Ah, but would a lack of precision make users more or less likely to follow the plan? Just how many significant digits are acceptable in planning?
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Re: Enough to Live On (2011)

Post by AltaRed »

NormR wrote:Ah, but would a lack of precision make users more or less likely to follow the plan? Just how many significant digits are acceptable in planning?
Probably no more than one significant digit (+/- whatever you want). I think Adrian is being a bit unfair to Steve because RRIFMetic isn't intended to be a 'one time' tax program, and as Steve rightfully says, the financial markets are a crap shoot. That said, whenever Steve gives us output data, I see it merely as a trend tool, and insightful when doing comparisons. The mistake is to get caught up in data.
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Re: Enough to Live On (2011)

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AltaRed wrote:I think Adrian is being a bit unfair to Steve because RRIFMetic isn't intended to be a 'one time' tax program
But he's claiming he can handle one time events such as selling a house, getting a new car etc, as well as future cash flows including tax dues to a higher degree of precision than the one that can reasonably (IMO) be warranted.

To give another obvious example: currently, most tax thresholds are inflation adjusted. It would be an easy target for future governments, strapped for cash but unwilling to overtly raise taxes. When will it happen? 5 years from now / 10 / 15 / never? It would sure affect all the numbers RRIFmetic calculates up to the cent.
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Re: Enough to Live On (2011)

Post by Bylo Selhi »

adrian2 wrote:My point is (and I guess Bylo and maybe others would agree) that it's misleading...
My previous post was a general observation rather than directed strictly at Steve. (You'll find my comments directed strictly at [another] Steve over in Watercooler... ;))

But I do agree with your point.

BTW a comment directed at the current Steve: It's not necessary to create a computational nightmare in order to show the variability and uncertainty of outcomes. A simple simplification would be to present outcomes as a range. So instead of telling someone their plan will generate $41,673.87 annually, why not instead tell them that the most likely outcome would be about $41,000 but could be also be as much as 10% or even more, more or less depending on how the future unfolds. I realize this may confuse or distress some people, however, it's important that they appreciate that these sorts of projections can't be precise.
NormR wrote:Ah, but would a lack of precision make users more or less likely to follow the plan? Just how many significant digits are acceptable in planning?
The issue isn't so much significant digits but rather that these projections are by their nature significantly imprecise ;)

I don't know if more precision would make more people get with the program. The point is that even if that were so, it would be highly misleading. ISTM we need to educate people that these projections are inherently imprecise because they depend on so many unknowns like future tax rules and rates, future growth rates, future inflation rates, etc. Perhaps the message is that, if they want their plan to work even if they end up going through a lengthy "bad" patch, e.g. like from 1930-1950 or from 1966-1980, etc., they need to be prepared to save a bit more than the plan nominally suggests and/or be prepared to spend a bit less than less than the plan nominally suggests. And even then there are no guarantees. As I said, it may be difficult news to accept, but it's news that they need to hear.
Last edited by Bylo Selhi on 16 May 2011 16:11, edited 1 time in total.
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Re: Enough to Live On (2011)

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I almost forgot, it has been so long that I did this.... there is an option whereby you can round off the last two digits of numbers in the reports, however, I don't know if anyone uses it. Some user who had the same aversion to accuracy as you guys, talked me into it. The internal computations are correct, it only rounds off at the display end.
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Re: Enough to Live On (2011)

Post by Shakespeare »

Some user who had the same aversion to accuracy as you guys, talked me into it.
Me, IIRC. :mrgreen:
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Re: Enough to Live On (2011)

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Shakespeare wrote:
Some user who had the same aversion to accuracy as you guys, talked me into it.
Me, IIRC. :mrgreen:
Probably.

Further.... I have had this thing out in general usage (mainly with financial planners) for over 15 years. You have to know that most financial planners have one or more anal clients who know how to use a calculator and look up tax payable using TaxTips or their copy of TurboTax. I get maybe one or two inquiries a year from planners forwarding tax accuracy questions. (This didn't used to be the case, BTW).
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Re: Enough to Live On (2011)

Post by Springbok »

steves wrote:I almost forgot, it has been so long that I did this.... there is an option whereby you can round off the last two digits of numbers in the reports, however, I don't know if anyone uses it. Some user who had the same aversion to accuracy as you guys, talked me into it. The internal computations are correct, it only rounds off at the display end.
Steves,
I have tried your program in the past and have thought it could be helpful to me if I put more effort into it. But it takes some getting used to and I think many would shy away from it, like I did. But it is probably one of the best efforts out there. I would like to see something less complex but better than the on-line calculators that anyone could use.

Regarding the accuracy, I recently had another look at RRIFmetic. For a couple, income splitting is a very important part these days. Your program doesn't appear to attempt any year to year optimum splitting like the tax programs do, at least from what I could see. You seem to suggest splitting any actual pension income and to cover RRIF withdrawals, transfer a lump sum from one spouse to the other at beginning of retirement period so that each spouse has approx same retirement taxable income at that point. This seems like an approximate work around, so why emphasize the accuracy of the tax calculation?

I don't see anything wrong with using a spreadsheet to look at scenarios. There is no need to achieve a zero portfolio value on the day I die! My wife with some accounting, but very little in way of computer skills made up our spreadsheet. It doesn't use average tax rates. We can run trial and error scenarios - Chose a desired annual income, then run it a few times with different portfolio yields and see how much we have at end. Not surprisingly your program and our spreadsheet can be made to produce similar results ;)

Don't want to knock your efforts, but it may be better if you emphasized accuracy and the benefit of reverse calculation a little less. Good luck with it.
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Re: Enough to Live On (2011)

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Its hard to explain, but anyone who manages to solve income splitting and at the same time keeps true to the recursive (reverse tax) math deserves the Nobel Prise for computer science. I personally, could imagine trying to build a needs-based income splitting program, and just as I had finished, the Feds announced joint tax returns. AARRGGH.

If you play around, income splitting at 40/60, 60/40, 45/55... etc and compare the results to 50/50.... you soon discover that the resulting combined plans vary almost not at all net income wise. I gave up even thinking about it for just that reason.
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Re: Enough to Live On (2011)

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Further.... there is no law which says income splitting has to be claimed. You can have income split 30/70, and submit each tax return separately. As long as each tax return is accurate, the feds don't care. If you use RRIFmetic and submit a 55/45 split set of RRSP/pension in your tax returns and each has calculated the tax accurately, then the feds don't care.
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Re: Enough to Live On (2011)

Post by Springbok »

steves wrote:Its hard to explain, but anyone who manages to solve income splitting and at the same time keeps true to the recursive (reverse tax) math deserves the Nobel Prise for computer science.
Would it be possible to come up with a much simplified program that doesn't bother with the recursive math, but does include optimal income splitting?

Personally, I don't care about die broke or die with specified inheritance scenarios. Just figure out balance value of portfolio after drawing desired income. Then repeat for a series of real returns and get a feeling of the odds of our savings being sufficient. If not satisfactory, go back and change the desired income figure.

BTW, The optimal ratios for income splitting can vary as RRIFs kick in for each spouse at different ages and other life events like inheritances or others affecting income of just one spouse take place.
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Re: Enough to Live On (2011)

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Springbok wrote:
steves wrote:Its hard to explain, but anyone who manages to solve income splitting and at the same time keeps true to the recursive (reverse tax) math deserves the Nobel Prise for computer science.
Would it be possible to come up with a much simplified program that doesn't bother with the recursive math, but does include optimal income splitting?

Personally, I don't care about die broke or die with specified inheritance scenarios. Just figure out balance value of portfolio after drawing desired income. Then repeat for a series of real returns and get a feeling of the odds of our savings being sufficient. If not satisfactory, go back and change the desired income figure.

BTW, The optimal ratios for income splitting can vary as RRIFs kick in for each spouse at different ages and other life events like inheritances or others affecting income of just one spouse take place.
I am sure there are a lot of top-down(non-recursive) programs out there. It is not on my radar, however. Sorry.
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Re: Enough to Live On (2011)

Post by Benchwarmer »

I have to admit that the exact nature of RRIFmetic was what drawn me to it. I have a simple tax return, employment income with some investments, and when I entered it into RRIFmetic and compared it to the actual return, it was extremely accurate (I believe within a dollar). I was impressed.

I like knowing that given a set of assumptions (inflation rate, stock returns, tax rates), I am getting 100% accuracy. I can always run another set of assumptions if I so desire.
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Re: Enough to Live On (2011)

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This is particularly important if you are a financial advisor. There is nothing more frustrating than having a client phone up and say..... "I just checked over the plan you ran for me, and I think the tax is wrong". Major time wastage.
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Re: Enough to Live On (2011)

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Benchwarmer wrote:I have to admit that the exact nature of RRIFmetic was what drawn me to it. I have a simple tax return, employment income with some investments, and when I entered it into RRIFmetic and compared it to the actual return, it was extremely accurate (I believe within a dollar). I was impressed.
The point I was trying to make is that there are quite a few tax credits / deductions etc which deviate from the typical case. You may not fall into those specifically, but a significant number of individuals do. I have prepared 5 tax returns for family members; I'm guessing none of them would have been calculated properly by RRIFmetic.
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Re: Enough to Live On (2011)

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adrian2 wrote:
Benchwarmer wrote:I have to admit that the exact nature of RRIFmetic was what drawn me to it. I have a simple tax return, employment income with some investments, and when I entered it into RRIFmetic and compared it to the actual return, it was extremely accurate (I believe within a dollar). I was impressed.
The point I was trying to make is that there are quite a few tax credits / deductions etc which deviate from the typical case. You may not fall into those specifically, but a significant number of individuals do. I have prepared 5 tax returns for family members; I'm guessing none of them would have been calculated properly by RRIFmetic.
I am the first one to admit that if you are a left-handed french speaking rape seed farmer in northern sask, rrifmetic won't figure in the 2% (max $50) special 2011 tax abatement. It does have the standard stuff.... age exemptions, health care levies, provincial surtaxes, etc.
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Re: Enough to Live On (2011)

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steves wrote:I am the first one to admit that if you are a left-handed french speaking rape seed farmer in northern sask, rrifmetic won't figure in the 2% (max $50) special 2011 tax abatement. It does have the standard stuff.... age exemptions, health care levies, provincial surtaxes, etc.
None of the above apply to any of my family members. How about more plain vanilla stuff, such as:
- eligible and non-eligible dividends
- foreign tax credits
- pension splitting
- tuition credits
- Canada employment amount
- caregiver amount
- medical expenses
- working income tax benefit
- Ontario tax reduction
- federal GST credit
- Ontario HST credit
- Ontario rent credit
- etc, etc
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Re: Enough to Live On (2011)

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We can agree that RRIFmetic is not a T1 prep program right? It touts 'tax accuracy' insofar as the majority of financial planning programs out there are, for the most part, highly inaccurate.... many offer a simple average tax rate. Many of those items you mention are handled (enhanced and not) dividends, credits and deductions of various types can be entered in the de grid. It is not complete, but for the purpose for which it was designed.... forecasting investment and non-investment financial entities out over time, in the context of income tax, and based on after tax income, it is quite a useful tool.
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Re: Enough to Live On (2011)

Post by Springbok »

The way I see it, why not make the tax calculation as accurate as possible if is relatively easy to do.

But it's really not important if it is not 100% accurate because we still have to guess at what the future holds.

Credits and other items like income splitting that can substantially change taxation are important, and perhaps may be more easily handled by a top down program or spreadsheet? It is difficult for a program like Steves to be all things to all people.

But regardless, I do think Steves program is an excellent piece of work and worth at least having a look at.
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Re: Enough to Live On (2011)

Post by couponstrip »

I think anyone using something like Steve's program and assuming precision of +/-1% 30-40 years out (or even 5 for that matter) have misunderstood some of the basic assumptions and their potential for variation in financial planning. It is unlikely that someone using this program (a DIY'er) would assume such precision even if the program provides it. The bigger problem with online calculators that this program seems to address is considering Canadian taxation. Precision down to a single dollar isn't necessary, but accuracy is. If I do a budget of my expenses to see if I can retire next year and come up with 50k then go on FIREcalc and enter my savings (say 50% registered) and enter an expected income from the portfolio of 50k, the result will not be very useful since tax will take away some of the 50k withdrawal.

In fact, I would guess that some may not even realize that the 50k (or 4% withdrawal rate) they enter into an online calculator is meant to be a before tax withdrawal from the portfolio. I missed that small, but critical detail until a year ago, and I've been at this for several years. So now that I know tax is not accounted for, how much does the withdrawal have to be so that I can spend 50k/year? It's a complex question and depends on where the assets are. The location of the assets and size of the withdrawal could result in yearly withdrawal variations of up to 20% or more. Even for ballparking years down the road, such inaccuracy is a problem since it could change the value of the required nestegg by 7 figure sums. If I want to sell my business, there is no going back if things don't work out. It's too late to find out I needed 1.5 million more to have the lifestyle I wanted in retirement. There may not be any more opportunity to generate income apart from becoming a Walmart gretter, so accuracy does have some value, and Steve's program would seem to have a role.
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Re: Enough to Live On (2011)

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steves wrote:We can agree that RRIFmetic is not a T1 prep program right? It touts 'tax accuracy' insofar as the majority of financial planning programs out there are, for the most part, highly inaccurate.... many offer a simple average tax rate. Many of those items you mention are handled (enhanced and not) dividends, credits and deductions of various types can be entered in the de grid. It is not complete, but for the purpose for which it was designed.... forecasting investment and non-investment financial entities out over time, in the context of income tax, and based on after tax income, it is quite a useful tool.
Fair enough, I'll gladly admit it's quite a useful tool. Where I disagree is when you tout 'tax accuracy'; while it can calculate tax to the dollar for simple cases, but it does not calculate it for the current year as soon as the client's situation starts to deviate from your assumptions about what's worthwhile to incorporate in the tax calculation and who is "a left-handed french speaking rape seed farmer in northern sask" (which none of my family is, but their situation can't be handled properly by your program).

And let's not start debating your projections decades from now in the future, which allow you to calculate a constant real dollars after tax income until the day you presumably die: there is no way in which those numbers will match real tax dollars in the future, not to even two significant digits precision.

So yes, RRIFmetic is not a T1 prep program, and it is a useful tool, as long as you don't take its numbers as gospel.
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Re: Enough to Live On (2011)

Post by steves »

I wouldn't expect a 35 year old to run a RRIFmetic projection, print out the results, and then use that printout to dictate his decisions for the next 60 years for goodness sake. You revisit the plan every so often as rates, your portfolio, employment future, new tax rates, new financial products.... etc develop. I thought that was what planning was all about. It is a moving target.
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Re: Enough to Live On (2011)

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