12/25/2019: The SECURE Act of 2019
TheSetting Every Community Up for Retirement
Enhancement (SECURE) Act of 2019
affects ORP in two ways:
The first of these has been implemented. The second requires some study.
- The Required Minimum Distribution (RMD) age is
extended to 72. This change grants "accumulators"
the ability to delay initiating their RMD, which,
in turn, will allow their IRA to continue to grow
for an additional 1 1/2 years.
- All non spouse beneficiaries must take distributions
within 10 years. That is the inherited IRA or Roth IRA must be
empty within 10 years of inheritance.
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.
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.
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
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.
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
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
The IRS Substantially Equal Periodic
Payments (SEPP) program allows receiving IRA payments
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.
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
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