Personally, I view the Funded Ratio as one of the most important Metrics for Retirement. It would be great to be able to calculate this analysis using Pralana. A good bit of the information is already present in the Models but a few additional inputs might be needed:
Already present:
- Min Expenses Cashflow
- Desired Expenses Cashflow
What I think needs to be added
- Legacy Amounts for Beneficiaries
- LTC Self Funding Buffer and Time
- General Buffer and Time
- Discount Rate (I use 30 year Treasury Rate, but other rates may also be valid)
Hope this makes sense.
A sample calculation approach is available in this discussion, https://www.bogleheads.org/forum/viewtopic.php?t=392120
Personally, I view the Funded Ratio as one of the most important Metrics for Retirement. It would be great to be able to calculate this analysis using Pralana. A good bit of the information is already present in the Models but a few additional inputs might be needed
Already present:- Min Expenses Cashflow
- Desired Expenses Cashflow
What I think needs to be added
- Legacy Amounts for Beneficiaries
- LTC Self Funding Buffer and Time
- General Buffer and Time
The legacy amount for beneficiaries is already in Pralana. All of the optimizations and tabular tables show the final amount left over, by choice or inefficiency, at the end. You might want to discount this by the 30y TIPs rate on your own, of course. The LTC amounts are in there too. If you want to reserve them you can create a Miscellaneous or Phases essential expense.
With regard to the other buckets used in the bogleheads thread you cited; you can easily set up separate accounts in Pranala for each goal, e.g. one account for LTC self-pay, one for expenses prior to social security, one for fun money, etc. (This would be Build > Advanced Portfolio Modeling > Option 1.)
- Discount Rate (I use 30 year Treasury Rate, but other rates may also be valid)
But, cutting to the chase, there are limits to how far Pralana can bend for those of us more concerned with bottom up investment style. There is currently a proposed new feature users can vote on to allow a Fixed Income Portfolio of individual bonds and CDS, which is a common way in lifecycle model for creating a liability matching portfolio.
And on a related matter, I have made the suggestion to add to Pralana's monte carlo run results tables, the Average Spending (and Average variable spending) over the course of the whole plan. Lifecycle investing cares more about consumption during the plan as it does the End of Life value. Most people value both, and Pralana could accommodate both concerns with just a few columns added to some tables, and a funded ratio could be added too.
Personally, I view the Funded Ratio as one of the most important Metrics for Retirement. It would be great to be able to calculate this analysis using Pralana.
I agree that adding Funded Ratio would be a win for Pralana. I used both "bottom up" and "top down" approaches before deciding to retire.
@jkandell Seems like we have a similar approach and find value in the Funded Ratio.
I don’t think Pralana currently manages Legacy quite the optimal way — it does a great deal but it could be better integrated.
I am new to the software and am not sure how a suggestion moves from an idea to an enhancement list for voting. I suspect lots of great ideas are being suggested and figuring out which is the most valuable is a challenge.
Thanks for the feedback …
I’m curious how you two are using the funded ratio. I used it as a rough-guide to when I could retire, but don't use it much since: my focus has shifted to keeping 100% of npv of essential expenses in safe assets (like TIPs). So that "safely funded ratio" (and how much ls left for discretionary withdrawals) is more important to me than the "total funded ratio". Is that why it matters to you? Have you seen TPAWplanner.com? It’s very robust for a funded ratio framework, and completely free. It doesn't try to force a circle into a square.
(and @jlee)I don’t think Pralana currently manages Legacy quite the optimal way — it does a great deal but it could be better integrated.
I think this is a great suggestion to make the legacy amount more explicit. I was just noting you could still do it now, via a miscellaneous expense marked essential. But I think it would be quite easy to add a "legacy for heirs" in the build section, and many would value that.
I am new to the software and am not sure how a suggestion moves from an idea to an enhancement list for voting. I suspect lots of great ideas are being suggested and figuring out which is the most valuable is a challenge.
Users suggest features either within the program itself (using the feedback button at the top right of the ribbon). Or you also can suggest features in the forum section titled “new feature suggestion” or something like that.
I don't think there are enough of us who do lifestyle investing to warrant this addition, but you never know. You might want to think on which screens you'd want to see the funded ratio. One possibility is top of Tabular>Balancesheet. Another is, per my earlier comment, on the Analyze> Monte Carlo results page. Or on a new "lifecycle" page of its own that showed selective columns from the Income and Expense sheet, with Totals of spending and income, and the Funded ratio, and Ratio of Essentials covered by safe assets or LMP. I guess my preference is on the Monte Carlo results page.
I am not sure how Stuart and Charlie curate ideas; but quite a few end up for users to vote on under “More>Resources>Feature Voting” within the program itself.
We use the Funded Ratio as a key metric to help assess our Retirement Plan.
Specifically:
- Do we need to adjust spending? Typically NEVER for a short term correction but we might need to for a longer term correction. We also use TIPs for a Cashflow Bridge till SS.
- Can we afford to splurge on this? We recently moved and had to decide how much house we could afford (we upgraded our Retirement home)
- Can we afford to give more to our Heirs or Charity Now?
Plus
Calculating the Funded Ratio provides great insight in to the Time-Risk-Spend requirements of various parts of our plan. This directly ties into how we create our AA since it's a very helpful analysis for our Need and Ability to take on Risk. This lets us focus solely on our Willingness to take on Risk .
Hope this helps ...
