The Essential ORP Narrative

1. Essential ORP asks for the basic facts of your retirement and computes an optimal savings withdrawal schedule.

    Amounts are in thousands of dollars
   (example: For $10,000 , enter 10 into the box)

   	Retiree		Spouse
   Current Age(s)
   Retirement Age (Default Age 65)
   Tax-deferred Savings (IRA, 401K, etc.)	$		$
   Tax-deferred Maximum Annual Contribution	$		$
   Roth IRA Savings	$		$
   Roth IRA Maximum Annual Contribution	$		$
   Regular Savings and Brokerage Accounts.	$
   Maximum Annual Contribution of All Types	$
   Social Security Benefits	$		$
   Age to Begin Benefits
   Pension and Other Income, Indexed to Inflation	$		$
   Pension and Other Income, not Indexed to Inflation	$		$
   Pension Beginning Age (Default: Retirement Age)
   Illiquid Assets	Home		Other
   Value of Home or Business	$		$
   Original Cost, for Tax Purposes.	$		$
   Optimize Your Plan

2. Essential ORP applies conventional wisdom to your retirement policy issues:
   • Assume constant retirement spending, adjusted each year to account for inflation.
   • 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.
   • Sell your house and/or business, if any, at age 80.
   • Set your planning horizon to age 92, the Joint Life and Last Survivor Expectancy for a 65 year old married couple, according to the IRS.
   • No savings are left at the end of the plan.
   • Excludes IRA to Roth IRA conversions. At least one quantitative study reports that conversions offer little economic advantage but their dramatic increase in taxes paid in early retirement tends to panic the novice.
3. Essential ORP uses financial professionals' consensus values for exogenous economic parameters:
   • 2.0% rate of inflation, the Federal Reserve's stated target. ORP applies this inflation estimate to income and tax brackets.
   • 4.0% rate of spending inflation, reflecting retirement living costs derived from the Senior Citizen League's study (2017).
   • 7% is the 10 year Rate of Return (ROR) for popular S&P 500 index funds as reported by Zacks.
   • 3.5% Moody's . Aaa Corporate Bond Yield.
   • 25% reduction in Social Security benefits in 2035 when the Trust Fund is depleted.

Tailor Essential ORP's assumptions to your situation with Extended ORP.

About ORP

The Optimal Retirement Income Planner (ORP) uses the facts of your individual situation to compute a tax-efficient savings withdrawal schedule that maximizes your retirement disposable income. ORP uses the same Linear Programming technology that Operations Research practitioners have, for more than 50 years, been using to manage oil refineries, blend chicken feed, schedule air line crews, schedule corn harvesting, do timbeer harvestint, and now, do retirement planning.

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Why use ORP

Employer managed pensions are disappearing. Self directed individual retirement accounts are flowering in their stead. The responsibility for managing your retirement saving is shifting from professional pension managers to you.

Withdrawals from your Tax-deferred retirement savings account (401K, IRA, SEP, etc.), other savings accounts (Roth IRA, taxable accounts), and other sources of income (Social Security income, pensions, etc.) are subject to personal income tax.

Because of income taxes the order and amounts you withdraw from your tax-deferred, Roth IRA, and taxable accounts affects your total retirement disposable income.

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When to use ORP

ORP may be used at any time. ORP is useful for pre-retirees, from the time of their first 401K contribution, to project their retirement picture.

Some retirees find an annual visit to ORP to be useful for retirement income management with a 3 step process:

1. The retiree determines her current savings account balance from her monthly brokerage statement, her Social Security benefits from SSA's annual benefits advisory letter, and her age from her birth certificate.
2. She runs ORP to compute a full retirement plan using the input parameters from Step 1 along with other information that provides personal details of her retirement situation.
3. ORP reports an income management plan for the specified retirement duration.

The retiree's decision making is concerned only with the first year of the plan. The retiree withdraws the amount reported as the plan's first-year distribution from her savings and budgets her annual spending to stay within the plan's first-year disposable income.

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How to use ORP

1. Each input form parameter has a help document associated with it. Click the parameters label to see the parameter's help.
2. Except for Retiree's Current Age, all form entries are optional and may be left blank. ORP supplies a default value for blank fields on the form.
3. Single retirees do not fill in the Spouse column.
4. Where appropriate ORP provides for separate accounts for husband and wife. The accounts appear in two columns, labeled Retiree and Spouse. For example, retiree and spouse have separate IRAs, and Roth IRAs but the couple shares a common taxable account.
5. A married retiree with a stay-at-home spouse should still fill in Spouse's age even though all other values in the Spouse column will remain blank. Spouse's age is used to compute Social Security spousal benefits and income taxes.
6. All dollar amounts are in thousands of dollars. For example $10,000 of annual Social Security benefits is entered as 10.
7. A percentage is entered as an integer and fraction. For example 32.5% is entered as 32.5 and not .325.
8. Ages are entered as integers.