I am curious this exists: Taking into account a legacy goal and accordingly optimize withdrawal/recommend Roth conversions
Consider this scenario: $10M Estate
-$7M in taxable
-$2M in tax-deferred
$1M in Roth
$0.3M in retirement spending (or 3% wr)
$2M legacy target for heirs
Pralana gives me a higher Final Savings number with a Roth Conversion at a 24% tax rate, which one could take to mean that a Roth conversion makes sense. However, perhaps it makes more sense to withdraw from the tax-deferred for spending and use the existing Roth + taxable for legacy since the heirs will receive the step-up in basis for the taxable.
I assume the answer is not possible, but wanted to check
Have you considered adding a one-time expense equal to the target legacy amount and running the optimizer?
But I agree with with @vrr106 that Pralana could make legacy amount more explicit in the Build section, given it is a common user goal. Vijay should do a feature suggestion! Yes, you can do a misc essential expense at the end of your plan, but this would make it a bit automated. (At the moment the Actuarial withdrawal spending method is only situation users directly enter their legacy amount.)
The program allows you to equalize IRA money vs other money by assigning an Effective Tax rate at Build-Financial Assets-Management. Here, you would estimate the tax rate your heirs would pay when the have to withdraw your IRA in 10 years. Because of differences in tax drag during the 10 years before Roth money has to be put in your heirs' taxable accounts, you should probably add a few percent to whatever tax bracket your heirs would be in to more fully equalize between the different types. Then, to tell the program to use that tax rate in Roth Analyses, on the Analyze-Roth Conversions, Roth Conversion Results tab, click the button near the top that says Effective.
As @jkandell mentioned, if you want to target spending spending accounts down as much as possible but with a legacy goal, under Analyze-Spending Strategies, pick Actuarial. That will base your spending each year on the expected life span you input, your current balance and your expectation of future market returns and also allows you to set a legacy goal. For folks wanting to spend down assets, Actuarial is the method that pros would recommend as it automatically adjusts to market conditions, but not too fast. Pralana will still spend taxes and any expenses you marked as Essential, the Actuarial calculation then finds an additional amount you can spend on top of those.
As @jkandell mentioned, if you want to target spending spending accounts down as much as possible but with a legacy goal, under Analyze-Spending Strategies, pick Actuarial. That will base your spending each year on the expected life span you input, your current balance and your expectation of future market returns and also allows you to set a legacy goal. For folks wanting to spend down assets, Actuarial is the method that pros would recommend as it automatically adjusts to market conditions, but not too fast. Pralana will still spend taxes and any expenses you marked as Essential, the Actuarial calculation then finds an additional amount you can spend on top of those.
Or as option two, list the legacy amount as an essential expense for last year of plan, and choose Consumption Smoothing... The two are fairly similar in philosophy, spending down everything but the legacy. Actuarial will directly calculate the amount each year depending on market conditions, consumption smoothing used in conjunction with a monte carlo will do essentially the same thing (through iteration rather than direct calculation) but evening out the spending curve.
