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ORP News and other news related to retirement

2019 News

07/19/2019: Essential Spending

ORP's fundamental retirement equation is

DI = ES + DS


  • DI is Disposable Income; after-tax income, the value that ORP maximizes;
  • ES is Essential Spending, contractual or other future obligations. Exactly what constitutes essential spending is left to you.
  • DS is Discretionary Spending, money left over for cruises and other frivolities.

ES is known spending input by you. DI and DS are optimal values computed by ORP.

06/10/2019: ACA Excess Report

Models that include restricting taxable income to below the ACA limit (Obamacare cliff) failed to solve when mimimum income exceeded the ACA limit and left it to the user to guess as to why. ORP now will, as part of the Nominal Withdrawal Report, show which ages' income exceeds the ACA limit. The ACA limit applier only to the period from retirement to ag 65, when Medicare kicks in.

05/31/2019: IRMAA

IRMAA is the progressive premium that higher income Medicare participants pay for their Medicare benefits. This is a progressive premium in that the higher the income, the higher the premium. ORP now includes IRMAA as part of its disposable income maximization.

03/16/2019: Federal Tax Table Update

ORP's Federal tax tables have been updated to the IRS 2019 values.

2018 News

12/12/2018: Add Cash as an Investment Type

Cash becomes a third type of investment in retirement savings accounts in addition to stocks and bonds. Cash is modeled as bonds that don't pay interest. Cash, as an investment type, is provided for users who use a bucket strategy for managing their retirement savings.

11/14/2018: Unsold Illiquid Assets the Remain in Estate

Illiquid assets that are not sold during retirement are now retained in the estate to the end of the plan and valued at their inflated price. The idea is that such assets, being in the estate, enjoy a stepped up basis value when the heirs go to sell them. Previously, ORP was liquidating such assets and paying capital gains taxes at the end of the plan.

09/17/2018: Lump Sum Pension Distributions

ORP now allows your pension to be distributed as either an annuity (a series of monthly payments) or as a lump sum. Retirees want to know which option is more valuable: lump-sum or annuity, in the context of the overall retirement plan.

08/04/2018: Change in Default Rates of Return

ORP now formalizes the assumption that the savings accounts Rates of Return includes reinvested dividends. So if ORP's default rate of return is 7% and dividends are 3.26% then the effective default capital appreciation is 3.74%. IRA and Roth IRA assume the full 7% is reinvested annually in the in the savings account.

For the Taxable Account, dividends are taxed annually as personal income while capital appreciation is taxed as capital gains at the time of withdrawal.

Users relying on ORP's default rates of return and comparing ORP results before and after this change will observe a reduction in annual spending.

04/18/2018: 3-PEAT Account Management Fees

ORP assumes that the user's estimate of stock market rates of returns, dividend rates, and bond yield have been reduced by any and all management fees. These are values that are personal to the user.

3-PEAT is working with actual historical date that does not include management fees. Management fees need to be specified by the user. A seemingly small fee can, when compounded over retirement, can be a significant drag on retirement earnings.

ORP's parameter form now has a field for specifying 3-PEAT's annual management fee.

03/20/2018: 3-PEAT Dividend Processing

3-PEAT now includes stock dividends in its computations for determining the growth of the Taxable Stock sub-accont. Dividends, like bond yield go to the income tax module and the contribute to spending.

2017 News

12/20/2017: The New Personal Income Tax Tax Schedule

The personal income tax tables for the Trump Relief for the Wealthy Tax Scam are now being employed by ORP.

10/31/2017: Health Savings Accounts Implemented

Early retirees who choose a high deductible health plan (HDHP) during their ACA enrollment can deduct their HSA contributions from their Modified Adjusted Gross Income (MAGI) for that tax year. ORP now models contributions to health savings accounts in conjunction with constraining taxable income.

10/13/2017: Improved Early Retirement Modeling

Early retirement is the retirement phase before age 59 1/2. During that period withdrawals from your IRA and Roth IRA are subject to a 10% early withdrawal penalty. Up until now ORP has modeled early retirement distributions in the same way it handled regular retirement withdrawals.

The IRS Substantially Equal Periodic Payments (SEPP) program allows receiving IRA payments without the 10% early distribution penalty before age 59 1/2. IRA to Roth IRA conversions are also exempt from the penalty. ORP has been enhanced to provide detail modeling of these two IRS exceptions during early retirement.

09/28/2017: Enhanced Default Inflation Rates

The Federal Reserve continually states that its target inflation rate is 2%, not the 2.5% currently used as the default by ORP. A study by the Senior Citizens League found that seniors' spending inflation, particularly medical costs, is 4%, not ORP's 2.5% default.

ORP's default inflation rates have been adjusted accordingly, 2% for income inflation and 4% for spending inflation. Of course these are default rates. You can set them to whatever you are comfortable with.

08/07/2017: Revised Growth of Account Contributions

Formerly ORP was increasing annual contributions to savings by the income inflation rate. The revised method assumes that contributions track the Bureau of Labor Statistic observed wage and salary growth for U.S. workers. This means that contributions will increase rapidly early in a workers history and flatten out as retirement approaches.

06/07/2017: Revised After-tax Account Model

ORP's method of modeling the After-tax Account has been revised. The After-tax Account is divided into two asset types: stocks and bonds. Stocks grow in value over the years and when they are sold the proceeds are taxed at the capital gains rate. Bonds yield interest each year which is taxed as personal income. Bonds do not grow in value and are redeemed at face value. Stocks do not issue dividends.

05/01/2017: Social Security OASI Depletion in 2035

The Social Security and Medicare Boards of Trustees estimates that Social Security's Old Age and Survivors Insurance (OASI) Trust Fund has a projected reserve depletion date of 2035. At that time, OASI income would be sufficient to pay 77 percent of scheduled OASI benefits. Since this is fact, until Congress changes the law, ORP reduces Social Security income by 23% beginning in the year 2035.

03/19/2017: Tax Table Update

ORP is now running with the 2017 Federal tax table.

03/13/2017: New Infrastructure

Beginning the process of switching ORP from 1990 WATCOM compilers, c and FORTRAN, to 2016 Netbeans and gnu.

03/06/2017: Enhance the 3-PEAT Simulator

Add the facility to download an Excel spreadsheet containing a summary of the simulator's output.

02/26/2017: Add the 3-PEAT Simulator

The simulator simulates the actions of a retiree that runs ORP annually with changed initial conditions (savings balance, Social Security income, etc.) to determine the current year's savings withdrawals and spending budget. Historical data are used to assess plan performance under historical financial conditions. In particular, the plan is reviewed for premature savings depletion and excessive disposable income volatility.

2016 News

08/03/2016: Capping IRA to Roth IRA Conversions

ORP's IRA to Roth conversion option has been enhanced for users who choke up on conversion's large IRA distributions early in retirement. The enhancement allows you to cap taxable income within your choice of tax brackets. Setting this parameter to 15% or 25% will cap conversions and usually string them out over more years.

The enhancement is targeted to planners who advocate this strategy to let them assess the economic consequences of their choices. It's all a matter of balancing the maximizing of retirement disposable income with being comfortable with IRA distributions (not quantifiable).

6/13/2016: Affordable Care Act Income Test Tightened

Models which contain non-savings income (Social Security benefits, pension income, post retirement earnings, etc.) after retirement and before Medicare are infeasible when this income exceeds ACA income limits. ORP now checks for this condition and disables ACA income limits when they are exceeded by this non-savings income.

4/4/2016: Affordable Care Act Constraint Relaxed

ORP now allows for modeling ACA income restrictions while specifying minimum bounds on the Roth IRA and After-tax accounts. Formerly this was disallowed because it was creating infeasible models in most cases. This was accomplished by not applying the minimum bound requirement until age 65, when the ACA income restrictions no longer apply.

3/23/2016: Income Tax Table

ORP's Income tax brackets have been updated to reflect changes for 2016.

2/25/2016: ORP's Third Article

A third article featuring ORP has been published in The Journal of Personal Finance:

Measuring the Financial Consequences of IRA to Roth IRA Conversions. See page 47

Past News 2000-2015

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