Logins, Usernames and Passwords
Question: I just bought the gold license but did not get a password. The user support page is asking for a User Name and password. Please let me know how to set my User Name and Password.
Pralana Response: Your PRC2018 Gold license will be entered into the Pralana database within 24 hours of your purchase. Thereafter, you will be able to login on Pralana's User Support webpage to download PRC2018 to a second computer and to get product updates as they become available (please monitor the PRC2018 Gold Change Log for details). Your username will be your lastname plus the last 3 digits of your Order ID (for example, smith123) and your password will be your Order ID. Shortly after completing your purchase, you should receive an e-mail that contains text similar to the following which contains your order ID:
Thanks for your order. This email confirms your order of the following items:
PRC2018 Gold (Upgrade from PRC2017) x 1
Your Order ID is 0023812345 and your payment has now cleared. A receipt has been emailed to you separately
Cut & Paste and Copy & Paste Problems
Question: Entering IRA amounts, I pasted a number into a cell, then was unable to change it due to a message saying sheet was protected. After working this for a while I determined that it seems to occur when you copy and paste a number into a cell, but not when you type the number in.
Pralana Response: The moral of the story is “don’t do that” because it appears to corrupt something in Excel despite the fact that the cells are appropriately write-protected. Your only alternative now is to download another copy of PRC and do an import.
Question: I'm attempting to import a 2018 Bronze file and received a VB error.
Pralana Response: Gold will not import from Bronze; there are way too many differences.
Question: I have noticed that I get the same answer every day that I run the PRC2017 simulator (assuming I don’t change the inputs). This leads me to believe that PRC does not know what “today” is. That is, when I set the simulator to start in 2018, it starts with the given inputs on Jan 1, 2018 and runs the sim. I will get the same answer regardless of when I run the simulator (whether it is Jan 1, 2018, Dec 31, 2018, or even June 5, 2035). Is that correct?
Pralana Response: That’s right; the current date is irrelevant.
Question: Are you aware of any user issues with the download via SendOwl? I have tried multiple times, after purchasing the 2018 Gold upgrade, but each download attempt gets hung up waiting for a response from transactions.sendowl. I am not receiving any error message, admin request, etc from my PC. I completed the same tasks as you and received a popup with a download button. Entering an email address will also generate an email link, which can be used to reach the download popup. Whichever method I use to access the download button, nothing happens when I click the download button.... except I see a tab that states "Waiting for transactions.sendowl.com...." I never see the small window or Excel file.
Pralana Response: We recommend use of the Miscrosoft Edge or Google Chrome browsers for downloading Pralana files; PRC downloads may fail to work with a configuration of Internet Explorer 11 and Windows 10. The workaround is as follows: On the IE11 page, go to Tools (the cog in the upper right corner), then Safety, then “Turn Off Windows Defender SmartScreen”. You can then turn this back to the “On” state when the download is completed.
Realized Capital Gains
Question: Just to make sure I understand the “withdraw capital gains 1st, evenly, last”, let me try an example:
Assume I have a single investment account (not tax deferred), consisting of US stocks and Fixed income, split 50/50 and worth $1M. 20% of my equity growth and 100% of my fixed income growth (assuming no capital appreciation, just interest payments) is realized each year. For this year, assume 10% return on stocks (easy math) and 2% return on fixed income. So at the end of the year, my portfolio is worth $1.060M dollars ($50K from stocks, $10K from bonds), with a realized capital gain of $20K ($10K from equities and $10K from fixed income). At the end of this year (prior to expenses), my portfolio now has $500K + $40K (with $40K unrealized cap gains) in equities, $500K in fixed income (no unrealized cap gains), and $20K cash (realized gains). Assume I have a $0 cash floor and need $50K for expenses. What does PRC do?:
Is that close to how it works?
Pralana Response: PRC definitely doesn't work the way you describe. Your descriptions seem technically accurate for the way the real world math works, but PRC approximates this. The actual calculations would be excessive and for minimal fidelity improvement in my judgment.
The first point of clarification is that the cash floor and ceiling settings are related to "the cash account" which is unrelated to any "cash" held within the regular investment account. You can look at "the cash account" as a checking/savings account at your local bank.
Next, PRC does maintain a running balance on the amount of unrealized capital gains in the account (it always knows the percentage of the account associated with unrealized capital gains) and it maintains the overall account balance, but that's all. The interest, realized capital gains (i.e., qualified dividends) and tax-exempt percentages are used strictly to calculate taxes on the annual account growth and are assumed to be unchanged over time (one of the approximation I was referring to above).
When it becomes necessary to make withdrawals from the regular investment account, the only consideration is the generation of realized capital gains (which has nothing to do with the realized capital gains percentage specified on the taxation page, which is intended strictly for specifying the annual percentage of qualified dividends received). If we're withdrawing capital gains first, then 100% of the withdrawal will be from the unrealized capital gains (UCG) balance, to the extent it's sufficient, and the UCG balance will be adjusted downward. If we're withdrawing evenly, then it uses its knowledge of the percentage of the account associated with UCG to determine how much CG to realize. If 20% of the account is UCG, then 20% of the withdrawal will be RCG and the amount of UCG in the account will be adjusted downward. And so on.
Question: I assume PRC does not ever “rebalance” a portfolio and take capital gains? So in the example above, I would need to “sell” equities and “buy” fixed income to get my portfolio back to 50/50. I assume PRC does not do this and just assumes 50/50 for the return calculation and tracks unrealized gains. Is that correct?
Pralana Response: PRC does assume that the account is rebalanced each year to maintain the specified asset allocation but this doesn't involve any actual movement of money and, hence, no capital gains. The only purpose of this (i.e., a particular asset allocation) is to determine the aggregate rate of return on the account rather than trying to model intimate details within the account.
Question: Today I tried gradually increasing my discretionary expenses until I got less than 100% success on either my historical or Monte Carlo analysis. I kept increasing and increasing, and kept getting 100% success, even though it was obvious from both the worst case/best case envelopes on the analysis page (as well as the detailed analysis page) that there were definitely scenarios that were running out of money. So I doubled my expenses again to a ridiculous value. The worst case/best case envelope showed me running out of money (worst case) in about 10 years (out of a 37 year retirement). However, the detailed analysis still showed 100% success for both historical and Monte Carlo. What’s going on here?
Pralana Response: Investigation revealed an initial balance in the user’s 529 Plan but no college educations were being funded using that 529 plan. Consequently, that account balance continued growing indefinitely with no withdrawals. The algorithm that measures success rate equates a positive total savings (which includes the 529 plan) at end of life to be success and, in this case, all other accounts had long since gone to zero but the 529 account still had funds, so this was interpreted as a successful scenario. I have elected to highlight this case as one to be avoided by the user and not to change the success rate algorithm.
Geometric vs. Arithmetic Returns
Question: This question relates to all of PRC products in regards to the “Real ROR” that is input for each asset class in the “Asset Classes” table under the “Financial Assets” tab. I realize that this return should not include inflation, but should the input value be the arithmetic or the geometric average? I would assume that for the “Fixed Rate” portion of the analysis you need to use the geometric average or mean. However, it’s my understanding that for most Monte Carlo analyses the “average” return should be entered as the arithmetic average, not the geometric average. I see you link to the Bogleheads website “Tips from Bogleheads” and data from Burton Malkiel includes both the geometric and arithmetic mean. Any advice in regards to what I should input into the software?
Pralana Response: You're correct that you should be entering the geometric mean and I'm glad you brought this up because it needs clarification in the user manual. FYI, PRC2018 approximates the conversion of this value to arithmetic mean for use in its Monte Carlo analysis.
Social Security Spousal Benefits
Question: I wanted to simulate SS restricted application for my wife, so I entered that I would file and suspend, and the SS income for my wife was her full FRA of 22,300. Restricted spousal should have been 1/2 of my FRA of 31,460. Should there be a restricted question?
Pralana Response: It automatically models the restricted application if it's allowable. The issue is that her benefits begin at the age specified on the Income page. If you move that out to, say, age 70, her spousal benefits will start as you expect at her FRA and then her own benefits will start at 70 and will reflect the delayed credit.
Medicare Part B Premiums
Question: What did you assume for the future estimates of the Medicare IRMA brackets... that the various brackets are fixed going forward, or that they are adjusted for inflation?
Pralana Response: They’re adjusted for inflation.
Today’s $ vs. Future $
Question: I'm modeling a 2% annual growth in income amount, but in the Income Projection the amount goes down instead of up as I would expect. I tested 10% and 5% and both of those amounts cause the income projection number to go up, but not sure the amounts look right. Bug or user error?
Pralana Response: I suspect you’re looking at the projection in terms of today’s dollars but are thinking about it in terms of future dollars. Switch the display to future dollars and see what you think.
PRC Bronze Question (but fully applicable to Gold): Let's assume a person has a fixed annual pension of $1000 along with annual expenses of $1000 that increase at an inflation rate of 4.0% per year. To accommodate that in the calculator, I set the inflation rate to 4.0% on the home tab and enter $1000 on the expenses tab with the boxed checked to adjust for inflation. On the tabular projections tab, the projected expenses look as expected when I toggle between current and future dollars. However, my concern is with how the income is displayed when I toggle between the two.
On the income tab:
I wonder if it might be better to reflect any inflation adjustment in expenses, rather than income, when displaying data in current dollars. However, that also might be confusing.
Another alternative would be to assume and apply a zero inflation rate when displaying data in current dollars, or provide a third toggle or master setting to accomplish this. I wonder whether others would find it less confusing.
Pralana Response: I think the calculator is correct as it stands but hopefully I can clear up your confusion; however, the first issue is that I THINK you misstated one item. You said "if I set the growth of income relative to inflation rate as 0.0%, the projected current dollars for income are correctly shown as constant $1000 dollars, but the future dollars for income are shown as declining...". In this case, the future dollars SHOULD BE INCREASING at the rate of 4% annually. I tested this and that is indeed what I observed. Can you confirm this?
Anyway, I'll assume you did misstate it and proceed with the explanation....I wonder, too, did you read the section of the User Manual that addresses this topic? It's in there because a few people have been a little confused by this topic over the years I've been building calculators...
So, we're talking about a fixed income of $1000 per year. To be clear, I think this means it's $1000 in 2017, in 2018, in 2019 and every year from now on regardless of what inflation does. In other words, a check will arrive each month for $1000 and it will not be adjusted for cost of living or anything else. That means that this income is $1000 in terms of future $. It'll be the same absolute dollar amount in future years as it is today. By definition, though, displaying any value in terms of today's $ means that the effects of future inflation have been taken into account (and effectively removed). Therefore, a fixed income actually DECREASES over time if inflation is present. In your example, since inflation is 4%, the income will decrease 4% each year in terms of today's dollars although it'll be constant in terms of future $. As you suggested, this correctly shows the reduced buying power of that income stream over time.
So, there's not really an option to do this any other way because it's a matter of mathematics. Also, income streams occur in a variety of ways and I have to provide a common way to characterize all of them. Some are fixed, like the one in your example. But others can increase over time, either at the same rate as inflation (the case of 0% that you used) or faster. Also, some can be specified (by an employer) in terms of future $ but not actually begin until some future year (which is common for pensions). A given individual may actually have all of these, so it's not at all feasible to try to address this issue by doing something different with expenses. We need to characterize income in each of the potential varieties and then just understand the way the various streams will appear when displayed in terms of future $ or today's $.
Follow-on question/comment: You are correct that I misstated the item you highlighted in the second paragraph of your reply. I should have used the word "increasing" instead of "declining". I can verify that my copy of the tool is increasing future dollars of income at the 4% rate as it should.
I also agree with your statement that software calculations are correct / or at least appear to be correct. My comments have been made as a result of observing the changing number trend. I have not tested any of the actual math, but the calculations all look reasonable to me.
In the course of drafting my original email I thought my issue was with the software math. However, after drafting my message, reading your reply and the documentation, I better understand that is not the case.
I appreciate the complexity of accommodating the various income streams within a standard structure. What you have works pretty well in terms of accommodating different types of income streams.
The documentation for Bronze software includes the following statement which I agree with:
"It’s often useful to look at projections in terms of today’s money because it helps to see how the value of the money changes over time. An income stream that grows at the same rate as inflation will remain a constant value over time in terms of today’s money, and thus its buying power will remain constant."
I would like to add that: "It’s often useful to look at projections in terms of today’s money assuming there is no inflation. At zero inflation, an income stream that remains a constant value over time in terms of today’s money will have constant buying power as long as expenses remain constant."
My issue is that the software does not provide a simple or elegant way to view projections for current income dollars at zero inflation. The software is adjusting the current dollar income stream by the inflation rate. When I first started using the software, I was a bit frustrated in setting up my income streams because the software was not showing me the income stream in current dollars at zero inflation. Over the years, I have tended to think of current dollars as meaning zero inflation. I wonder if others also tend to view it that way. It seems to me that an important baseline retirement income planning scenario is to understand to what extent projected retirement income covers expenses assuming no inflation.
The Bronze software can display a current dollar income stream at zero inflation by changing the inflation rate to zero. But, in the case of a fixed pension, that also requires changing the relative inflation numbers when defining the income stream. This strikes me as an awkward solution as the income streams can be otherwise difficult to define. My suggestion for a more elegant solution would be to provide for a way to display tabular projections for current dollars at a zero inflation rate without having to change the inflation rate or the inflation income adjustments. That is what I had expected and assumed the software was doing when I displayed the data as current dollars. It took me a while to understand that the software was not doing that. It was adjusting the income stream by the inflation rate. I don't know what it would take, but it would be ideal if there were was an additional option (or third toggle) to display current dollars at a zero inflation rate without changing the baseline inflation assumptions.
I hope this is clearer than my original message and that my comments and suggestion may be helpful to you in improving your very fine software.
Pralana response: Thanks for your considered response, but I have to tell you that you've got me baffled. I have no idea why you'd want to assume zero inflation or why that has any value to you. On the other hand, a view with all numbers calibrated in terms of today's dollars makes all the sense in the world because it shows you how your income, expenses, cash flow and account balances trend over time on a fixed scale (today's dollars, which is not the same as zero inflation). I think that gives you exactly what you're looking for (to know to what extent your retirement income covers your expenses). You said that you've tended to think of current dollars as meaning zero inflation, but that isn't technically correct. Any projection calibrated in today's dollars must necessarily take inflation into account and convert future dollars to today's dollars for every year beyond the first year. You stated that you wanted to have the tool assume zero inflation and do the projections accordingly (in some elegant manner which apparently excludes simply setting inflation to zero). Let's walk through that: So, you have a fixed pension and expenses that will grow with inflation (makes sense to me; that describes my pension and expenses). Therefore, in reality, the buying power of that pension will diminish each year. If we do the projection exactly as you're suggesting, you'll be misleading yourself because the expenses will NOT grow and the ratio of income to expenses will remain constant. On the other hand, if you add inflation, the income/expenses ratio will decrease over time and the only thing that'll save you is a savings account with a sufficient balance to cover the cash flow deficit over the long haul.
You said you were wondering if others viewed it your way. Certainly I can't say for sure but what I can say is that there are thousands of Bronze calculators and about one thousand of my Gold calculators in the field (they both work the same way in regard to future and current dollars) and you're the first user to ever make this suggestion. I have had several questions related to helping people understand the difference between today's dollars and future dollars, but no one else has ever suggested that a different approach would be useful.
Follow-on question/comment: I agree with most everything in your reply including your basic point that an inflation adjusted view of ones finances is important and makes a great deal of sense. I would never suggest that it be eliminated or replaced with an analysis based on zero inflation. However, I do think there is value and looking at data without considering the impact of inflation. It has to do with how people comprehend and learn.
I believe that most people learn best by proceeding from the simple to the complex. Like learning to walk before learning to run. There is high value in understanding simple cases before trying to understand more complex cases. It seems to me that understanding ones financial picture with zero inflation assumptions is the simplest case to understand. That is why I feel an option to display data with zero inflation assumption would be very useful to most people.
It strikes me to that the next most complex case to understand would be data displayed in future dollars in inflation adjusted terms.
I think the most complex case is to understand is data displayed in current dollars in inflation adjusted terms.
That is why I would recommend your adding a third data display option. The data display options would be:
I hope this helps in better understanding my earlier comments.
Final Pralana response: None offered.
Modeling of Mortgages
Question: On the rental property page, I entered the asset value and % financed so that the monthly mortgage payment is correct. However, the equity in the house is wrong because I have made extra principal payments in the past. How do I account for extra principal payments on a mortgage?
Pralana Response: There are a couple of options but neither may be ideal: one is to use the Excess Annual Payments field in conjunction with checking the Retroactive box; however, this applies the specified payments back to the beginning of the loan and continues them into the future. The other option is to diddle with the numbers, such as the excess payment amount, the size of the loan, etc. I think you can understand that there isn't a good way of accommodating any and all scenarios of excess principal payments made in the past or to be made in the future. The tool is designed for constant excess payments but not occasional payments, so you may just have to play with the numbers until they're close.
Withdrawals from Tax-Deferred Savings
Question: Why is my AGI so much higher in 2027 than other years? Background: 2027 is the first year of RMD’s for this user, following several years of negative cash flow which required unscheduled withdrawals from tax-deferred savings.
Pralana Response: I've taken a quick look and believe it's because of the fact that PRC pays the taxes on withdrawals from tax-deferred savings which are driven by negative cash flows in the year after they occur. I think you'll easily understand the reason for this: PRC determines cash flow by subtracting expenses from income, where expenses include taxes. Then, it adjusts account balances such that "deposits" are made if the cash flow is positive and "withdrawals" are made if the cash flow is negative. But withdrawals from tax-deferred accounts are taxable events, and rather than get into some iterative tax calculations I chose to simply include those withdrawals in the AGI for the subsequent year. The same thing is true when making withdrawals from taxable accounts that result in capital gains.
Follow-on question: I see it now. A simplified formula for my sake:
agi(i) = TaxableSS(i) + rmd(i) + TaxDefSavWith(i-1)
Since my TaxDefSavWith goes to zero at age 70 and is replaced by rmd and ss, the year-late agi catches up and appears doubled up in that year.
I suppose I may eventually come around to how this does not really matter in the overall scope of things, but you do realize how odd this looks, right? I'll let you treat that as rhetorical if you wish. :-)
Have you considered adding the ability to allow the user to specify planned minimum distributions from retirement accounts by year? You could tax these "pmd's" in the same year, like rmd's, thus fixing this "problem".
Just that user specified PMDs (planned minimum distributions) would help fix the problem, because (like RMDs, you know what they are before calculating the TaxDefSavWithdrawal, and there is no circular tax computation issues. You could use pmd(i) to calculate agi(i) just like you use rmd(i).
If I designated a large enough PMD, PRC would not need to "tap the tax deferred account to cover negative cash flows". Excess PMDs would go into regular savings, and be available for the next year. Of course a TaxDefSavWithdrawal would still be made if the PMD was not large enough to cover the cash flow.
Even if it was not to solve this AGI issue, it is not beyond the stretch of imagination for someone to want to model the effects of stating his own planned withdrawal amounts. As an optional entry, it seems to fit the scope of PRC.
Follow-on Pralana response: This is problematic for multiple reasons:
1. The tool's integrity depends on RMD's being calculated and implemented in accordance with IRS code and this cannot be left for the user to specify (not at all practical). Therefore, even if the PMD was implemented, the RMD algorithm would still need to exist and somehow be integrated with the PMD feature and thus adding complexity for the sake of avoiding the appearance of an issue. As you stated yourself, the algorithm to take withdrawals to handle negative cash flows would also still need to exist to handle cases where the PMD wasn't large enough.
2. Monte Carlo and historical simulations will tend to result in a large variety of account balances from one test case to the next, with corresponding differences in RMD's and negative cash flows. So, again, the RMD and prioritized withdrawal code will still need to exist and the PMD code would just add more complexity.
With that said, something like the PMD already exists on the Financial Assets/Management page. It's the Scheduled Withdrawals Table where you can specify withdrawals from either of the tax-deferred accounts or the Roth account, with start and stop dates and optional annual inflation adjustments. Of course, RMD's will still be taken but this could be used to make supplemental withdrawals.
Follow-on question/comment: Very good. You implemented PMD's, though you called it (scheduled withdrawals), and you did it a year ago! ;-) Scheduled Withdrawals works exactly as I described/hoped, causing the tool to calculate my taxes in the year I take my withdrawals. Ironic that you put the scheduled withdrawals in the RMD column. :-) Anyway, it seems perfect.
Pralana Consulting LLC, Plano, TX
© 2018 Pralana Consulting. All Rights Reserved.
PRALANA RETIREMENT CALCULATOR | The Mercedes-Benz of Retirement Calculators
ADVANCED PERSONAL FINANCIAL MODELING | MONTE CARLO & HISTORICAL ANALYSIS | INTERACTIVE WHAT-IF ANALYSIS