My confusion is similar to the post "Roth Optimization not as good a manual result". However, the problem has not healed itself. I have attached a spreadsheet with the pertinent columns. You can see the Roth Conversion amounts jump around. For some strange reason, PRC recommends large conversions in the last two years of my wife's expected life term. What if she dies earlier?
We are both retired. My wife is not currently subject to RMD. No annuities or windfalls. Just social security and investment income. I read Stuart Matthews comment in the post "Roth Optimization not as good a manual result" that PRC optimizes on several factors. The PRC team has put a lot of thought into the logic. Why should I trust the Roth Optimizer?
I found that manual roth conversions provide similar end-of-life portfolio values -- as noted in the earlier post.
[personal info attached removed by site admin]
@pr73734r Hi, I moved this from the PRC Excel Gold/Bronze section to the Pralana Online section. Also, I am deleted the attachment containing your personal information that otherwise all subscribers can see (some may have already seen it).
You may find it more convenient to use the Pralana Online Feedback feature to ask questions like this that pertain to your personal information. The site admins can access your plan projections, so there is no need to extract and post spreadsheets....easier for you.
The R/C optimizer algorithm is explained in the user manual. In short, it tries hundreds of permutations of ordinary income bracket limits over your conversion years. For each permutation, it does a full scenario recalculation and saves the final effective savings. When done, the 'best' solution is the one with the highest final savings.
See also More > Resources > FAQ: Does "Optimize Roth Conversions" evaluate all permutations of the ordinary tax brackets during the conversion years? Can it also optimize for other inputs such as account priority and maximum LTCG tax brackets, etc?
Re: "What if she dies earlier?" You specify her life expectancy and many other inputs, like inflation rates, asset/account rates of return, etc. Pralana makes projections based on your inputs. You can certainly test alternative scenarios by copying scenario 1 to scenario 2, reduce her life expectancy and see the impact on your the final effective savings.
Thanks for removing the file. Will use feedback, as I have in the past.
In short, your response is "Que sera, sera". Methinks the PRC Roth optimizer needs a rethink.
- Life expectancy is just that. A wild guess. PRC uses it as a cliff. PRC should assign probabilities around the specified life expectance. PRC uses the Monte Carlo approach to investment returns. Life is just another gamble.
- Suggest PRC uses one or more goals for roth conversion, such as, "Convert 80% of IRA to Roth", "Maximize Roth account".
Is the PRC approach to roth "Take action on the first year, come back a year later and run the optimizer again"? i.e., don't look at the series of values as a defined path. Act now. Calculate again in a year.
