Full
ORP

The Optimal Retirement Planner (ORP) computes your tax-efficient schedule of retirement savings withdrawals for your entire planned retirement. Withdrawals from your Tax-deferred account (401K, IRA, SEP...) are subject to the Federal progressive personal income tax. The order in which you make withdrawals from your Tax-deferred, Roth IRA, and After-tax accounts affects your total retirement disposable income.

The essential ORP narrative:

  1. Asks for your facts, in thousands of dollars ($000):

    Click on parameter titles for help. Retiree Spouse

    Current Age(s)

    Tax-deferred Account Initial Balance $000
    Tax-deferred Maximum Annual Contribution $000

    Roth IRA Initial Balance $000
    Roth IRA Maximum Annual Contribution $000

    After-tax Account Initial Balance $000
    Maximum Annual Contribution of All Types $000

    Social Security Benefits at Full Retirement Age $000

    Illiquid Assets
    Home Other
    Value of Home or Business $000
    Cost Basis - Originally Cost, for Tax Purposes. $000
    Mortgage or Loan - Principle balance due at sale $000

  2. Applies conventional wisdom to retirement policy issues:
    1. Assume constant retirement spending, indexed to inflation.
    2. Retire at 65, when Medicare begins.
    3. Delay Social Security Benefits to age 70; the best long term investment money can buy. Live off of savings until Social Security benefits begin.
    4. Allocate 60% of savings to stock and 40% to fixed income at the beginning of retirement. Gradually reduce stock allocation to zero at the end.
    5. Sell the house and/or business, if any, at age 80.
    6. The planning horizon is age 95, the Joint Life and Last Survivor Expectancy for a 65 year old married couplei, according to the IRS.
    7. No estate at the end of the plan.
    8. IRA to Roth IRA conversions are disallowed. At least one quantitative study (See page 47) demonstrates that conversions offer little economic advantage but increase taxes paid early retirement.
  3. Uses generally agreed upon values for exogenous economic parameters:
    1. 2% rate of inflation, the Federal Reserve's stated target.
    2. 7% is the 10 year Rate of Return (ROR) for popular S&P 500 index funds as reported by Zacks.
    3. 3.5% Moody's . Aaa Corporate Bond Yield.
To override these assumptions click Full
ORP
.

The article on page 17 in the 2015 Journal of Personal Finance contrasts ORP to the conventional wisdom of retirement savings withdrawals.


ORP's result windows require popups. ORP. Terms of Use
Last Update
September 5, 2016
© 2016,
James S. Welch, Jr.