ESPlanner Support

RE: Definitions, etc

gbridi at comcast.net — Thu, 20 Nov 2008 14:49:38 GMT

Re the annuity. I have a fixed annuity at 6.25% the term of which expires in 5 years. At that time I can make assumptiona about the future return rate. Is there a way to reset the return on these dollare in the out years? e.g. if I assume the return will be 3% for the 10 years after the annuity matures, how do I do that?

Thanks GB

RE: Home change - Results make no sense

royerd at gvsu.edu — Thu, 20 Nov 2008 13:57:25 GMT

It's hard to answer this question without seeing all of the data--but one of the program engineers may be able to tell you what's going on.

Remember there is a 6% (that's the default setting) cost of selling home. But look at the Net Worth statement and see that the last column is the sum of all of the columns to its left. Also compare this Net Worth report to the Housing report in the detail spreadsheet and perhaps you'll see that the numbers do add up.

The housing reports have been looked at pretty closely, so it's probably just a matter of understanding what the numbers mean.

Best,

Dan

Home change - Results make no sense

gbridi at comcast.net — Thu, 20 Nov 2008 06:55:55 GMT

I made a single change in my input which was to sell my ptimary residence at age 70 with 603K equity in it and bought a new one with no mortgage for 450K. Yet the net worth at the end is 380K less although I bought a less expensive home, kept some of the equity, had lower taxes and no mortgage.

RE: Definitions, etc

kotlikoff@bu.edu — Thu, 20 Nov 2008 05:34:45 GMT

HI, I REPLY IN CAPS BELOW. BEST, LARRY

What does" Specify percent of non annuitized assets to be spent" mean?

SOME PEOPLE WANT TO SAVE, I.E., NEVER WITHDRAWAL, A PORTION OF THEIR RETIREMENT ACCOUNTS. WE LET YOU SPECIFY THIS PORTION, BUT OVERRIDE YOUR ANSWER IF THE MINIMUM DISTRIBUTION REQUIREMENTS REQUIRE DISTRIBUTING MORE THAT YOU WANT TO HAVE DISTRIBUTED.

Re: Select age of 1st withdrawal - my plan is to spend down non qualified assets first - does the program not calculate when that time is?
BY SPECIFYING, SAY, A FIRST WITHDRAWAL AGE OF 72, THE PROGRAM WILL USE NON-QUALIFIED ASSETS PRIOR TO YOUR STARTING YOUR WITHDRAWALS AT AGE 72. THE MINIMUM DISTRIBUTION REQUIREMENTS WILL, HOWEVER, ENTAIL SOME WITHDRAWALS AT AGE 71.
- relates is what is the definition of "Individual deductable accounts"? - the other accounts in the drop down box are Employer accounts and Roth - do all other account types make up the individual deductable accounts?
YES

Re: Percentage of assets to be annuitized - we have a 5Y fixed so I can calculate the % of our assets - what happens in the model after 5 years? Does it assume it continues forever? I DON'T FOLLOW YOUR QUESTION. PLEASE CALL ME AT 617834-2148. NOT SURE WHAT YOU MEAN BY WE HAVE A 5Y FIXED.

Definitions, etc

gbridi at comcast.net — Wed, 19 Nov 2008 22:12:20 GMT

I just bought ESP and am loading info - I am retires at 60 and my wife is also retiired at 59 - so here are my ??'s

What does" Specify percent of non annuitized assets to be spent" mean?

Re: Select age of 1st withdrawal - my plan is to spend down non qualified assets first - does the program not calculate when that time is? - relates is what is the definition of "Individual deductable accounts"? - the other accounts in the drop down box are Employer accounts and Roth - do all other account types make up the individual deductable accounts?

Re: Percentage of assets to be annuitized - we have a 5Y fixed so I can calculate the % of our assets - what happens in the model after 5 years? Does it assume it continues forever?

RE: Consumption

royerd at gvsu.edu — Wed, 19 Nov 2008 17:27:45 GMT

Remember that ESPlanner Consumpiton column is showing what you *should* be consuming if you want to have a living standard that is as smooth as possible through time. It may also be recommending saving--which would explain why you might be consuming more than is recommended. In other words, ESPlanner is perhaps suggesting that you save more and spend (consume) less if you want to have a smooth living standard through your life.

Consumption

jjhjacobs at harbornet.co — Wed, 19 Nov 2008 15:05:43 GMT

Can someone please explain why my current actual consumption is different (greater) than what ESPlanner states I am consuming. Thanks.

RE: Growth, percentage change, appreciation rate & inflation

munroe — Wed, 19 Nov 2008 10:46:58 GMT

mikereed6 at sbcglobal.ne wrote:

Can I assume the following are not affected by the inflation entry . . .
Earnings Growth
Special Expenditures, Receipts & Reserves Growth
Retirement Account Growth
Real Estate Expenses & Receipts Growth
Social Security Future Covered Earnings Growth Rate
Assumptions - Nominal Rates of Return

While the following are computed using the entered inflation rate:
Special Reserves Nominal rate of return
Annuity Rates of Return
Primary Home, Vacation Home & Real Estate - Annual Real Appreciation

In our area, rental property has appreciaated in value for the past 25 years at a rate of 5%, while inflation has averaged 3%. If I have inflation set at 3% in ES Planner, and I enter 2% as the Annual Real Appreciation Rate, that equals (1 + .03) * (1 + .02) or close to 5%.

Thanks, I think I have it correct??

Mike,

All growth rates are affected by inflation (see the math in my previous reply). I think you're asking "are these growth rates the user interface (UI) requests in real or nominal terms", so that's what I'll answer.

Earnings Growth: Real (the UI multiplies by inflation before growing)
Special Expenditures, Receipts: Depends if you enter values in today's dollars (in which case the growth rate is real) or dollars (in which case the growth rate is nominal).
Special Reserve Fund: Real growth rate for growing the value of the fund year to year in terms of the desired balance. Nominal rate of return year to year on the balance in the fund.
Retirement Account Contribution Growth: Real
Retirement Account Asset Growth: Nominal (from the assumptions page)
Real Estate Expenses & Receipts Growth: Depends if you enter values in today's dollars or dollars (see above).
Social Security Future Covered Earnings Growth Rate: Real
Assumptions: Nominal
Annuity Rates of Return: Nominal
Primary Home, Vacation Home & Real Estate Annual Appreciation: real

The UI displays all dollars in real terms (today's dollars). Report values are all presented in real terms. Where we thought you would like to see the real/nominal difference in the UI, we have two columns, the first is real, the second nominal.

Yeah, 2% real growth is about right with inflation set at 3% to get 5% nominal growth. Although given the current climate and especially if you're planning on holding your house for a while, you might consider holding your growth rate well under the historical average.

Best,

Dick Munroe

RE: Growth, percentage change, appreciation rate & inflation

mikereed6 at sbcglobal.ne — Mon, 17 Nov 2008 16:30:51 GMT

RE: Growth, percentage change, appreciation rate & inflation

munroe — Mon, 17 Nov 2008 11:59:50 GMT

Unfortunately it's not done consistently in the user interface (I think).

In general if you are asked for a "real" rate of return, that will be on top of inflation, i.e., the nominal rate of return will be the product of whatever you've set inflation to and the rate of return you enter:

nominal rate of return = (1 + inflation) * (1 + real rate of return)

Otherwise the rate of return should be considered to be nominal and to include inflation. Simple algebra gets you the real rate of return, given a nominal rate of return:

real rate of return = ( nominal rate of return / ( 1 + inflation ) ) - 1

For example, savings (regular assets) are typically held in accounts with a nominal rate of return (the return is constant independent of inflation).

Best,

Dick Munroe