We offer a free Bronze retirement calculator that’s far better than most, but our very affordable Gold calculator is a robust personal financial model with unprecedented capabilities. Here are just some of its features that you probably won’t find elsewhere:
It is a fully-integrated model that deals effectively with every phase of your life:
>> Separate modeling of husband and wife financials
>> Consistent modeling across accumulation and distribution phases
>> Implementation of RMD’s and QCD’s per the SECURE Act
>> Detailed Federal, state and FICA tax calculations
>> Time-varying withdrawal priorities
>> Derivation of rates of return based on time-varying asset allocations
>> High-fidelity income and expense modeling, with multiple spending strategies
>> Health Savings Account modeling
>> Survivor scenarios
>> Term and cash value life insurance recommendations and modeling
>> Roth conversions, with sensitivity to tax brackets and the ACA cliff
>> Integration and analysis using fixed rate, Monte Carlo and historical methods
>> Consumption smoothing and overall margin calculation
>> Optimization of Social Security start ages in the context of your overall plan
>> Calculation of your earliest achievable retirement date with 90% confidence level
>> Analysis of your particular scenario against historic bear markets
>> Highly flexible tabular outputs and supplementary PDF reports
>> Simplified inputs page to make the tool more accessible for first-time users
Can I afford to switch to a lower-paying but more rewarding career? When can I retire? How much can I withdraw each year and still be confident that I won’t outlive my money? Do I need some supplemental income in retirement? I’m not a financial expert; can I really do this myself? Is it worth my time to model the future in detail, particularly with so much uncertainty involved? After all, as someone famously said “It’s tough to make predictions, particularly about the future”.
The future is impossible to predict but the Pralana Retirement Calculator has the ability to model in high fidelity the numerous interacting financial forces that will shape your future and help you gain a deep understanding of possible outcomes. Details matter if you want anything other than a rough approximation, and Pralana can handle those details. It can be used effectively by anyone with a basic understanding of financial terminology such as inflation, assets and rates of return, and the motivation to dig in and do the work. It can help you answer the hard questions and make educated decisions. It can become your trusted companion.
From Paul R.: I love the many new features of PRC2020 Gold, especially being allowed to use specific dates instead of just years. I also love the addition of health care savings accounts and scheduled withdrawals from inherited IRAs. The earliest safe retirement date is a fun tool also. Wonderful product and the best value around - by a very, very wide margin!! Keep up the great, great work!!
From Mark J.:”I want to compliment you on PRC Gold--it is the most powerful tool I have ever seen for retirement planning. The more I work with it the more I appreciate its robust capability!”
From Mark M.: “I’m thoroughly impressed with your work. It took me awhile with the user manual to work through the input and understand what the output was telling me, but it was a great exercise and learning experience. This will definitely provide the confidence we needed to proceed with our retirement.”
From Shayne B., Santa Rosa, CA: “From the moment I found out about Pralana Gold from Darrow Kirkpatrick’s fine blog (Caniretireyet), I have been hooked on this great retirement calculator. It is superior in every respect to every other medium and high fidelity retirement calculator that I have used. The tool’s ability to effortlessly model various financial what-if scenarios with a holistic view of the results is truly invaluable (Roth conversion vs. no Roth conversion, moving from a high tax state to a lower-cost home in a low tax state, should I work part time or not?, should I pay off a rental property or not?, should I keep on working or retire now?, should I delay taking social security?, etc.). Additionally, Pralana Gold’s ability to do stress testing is exceptional (testing lower rates of return, higher inflation, longer life spans, higher expenses, etc.). And best of all the cost of Pralana Gold is miniscule - a heck of a bargain- and the support from the developer is truly excellent. I highly recommend this tool for young people all the way up to people in retirement, and for everyone in between. Fantastically useful, at a ridiculously low price.”
From Mark H., Seattle, WA: “This is an amazing product that I’ve spent hours and hours utilizing to model my situation. I’m on the cusp of 60 and I read everything I see about personal finance. I’m a banker, MBA, so I know finance, and 99.99% of the time there is not much new. Your model is the best tool I’ve ever found!”
From Catherine R., Sparta, NJ: “I’m hooked! This is by far the most comprehensive of the 18 retirement calculators I tried and the easiest to use among the detailed ones. I started with the free Bronze version and loved it, so I bought Pralana/Gold and they’re in Excel so I don’t need to be online. It allows for impressive detail of inputs and variables, lets you easily test different scenarios, creates great reports, and gives this control freak everything I need. Customer service was prompt and thorough when I had questions. The User Guide is substantial and very useful, including examples. I have full confidence in its results!”
From Dwayne C, Gardner, MA: “I love this program, so powerful yet fairly easy to use! It has made our retirement planning much more a plan as opposed to a guess. I’ve endorsed it on Darrow Kirkpatrick’s website as well as with friends and relatives. And frankly, this is without a doubt the best $100 I have ever spent...for the price of a nice dinner out, getting to see where you’ll stand financially in the future based on where you are today...it really is a great bargain.”
Retirement Calculator Fidelity
As a designer of retirement calculators, I’ve spent a good deal of time looking at the competition. One thing has become abundantly clear as I’ve gone through this process: some calculators are serious tools while others are useful only for providing a quick-and-dirty look at retirement plans. For the sake of evaluating and discussing retirement calculators, I believe a useful discriminator is the concept of calculator fidelity. Wikipedia’s definition of the term “fidelity” as it relates to this subject is as follows: “The degree to which a model or simulation reproduces the state and behavior of a real world object, feature or condition. Fidelity is therefore a measure of the realism of a model or simulation”. Read more...
An Optimized Solution for Modeling Account Growth in Retirement Calculators
In February 2017, Darrow Kirkpatrick (caniretireyet.com) posted an article describing a mysterious problem related to the size of the “time step” used by most retirement calculators in modeling decades of a user’s financial future. He pointed out that most calculators use years as their time step because using days, the time step unit of the real world, is impractical and then went on to elaborate on the potential modeling errors that could result from this design simplification. This article elaborates further on this issue and the practical solution that we developed in the course of our collaboration on this topic. Read more...
Retirement Calculators 101: The Basic Formula and a Definition of Terms
This is a detailed, top-down technical article on retirement calculators. It has been prepared by the designer of the Pralana Retirement Calculator but it is written objectively and will not get into the subjective business of suggesting “the best retirement calculators”. Armed with the knowledge presented in this article, you will be equipped to assess for yourself the goodness of a retirement calculator and the extent to which it can be trusted to provide accurate and/or useful information, and then determine which one (s) might be “best” for YOU.
Retirement calculators are about one fundamental thing: they create a long term prognosis of your financial health based on certain assumptions and then allow you to change some or all of those assumptions to observe the effects on that prognosis. Here, in the simplest mathematical form possible, is the formula for creating that prognosis:
Long term prognosis = initial savings + growth of savings + deposits to savings – withdrawals from savings, projected out over your lifetime. The terms of this formula are defined as follows:
- Initial savings is the amount of money currently in your accounts.
- Growth of savings is the interest and dividends earned on your accounts and the growth (or loss) on the investments you’ve made with your money.
- Deposits to savings are the new money that will be added into your accounts in the future, including the liquidation of real property.
- Withdrawals from savings are the money taken out of your accounts to cover negative cash flows whenever your expenses exceed your income.
- Projections are the year-by-year additions to and subtractions from your savings for some number of years to create the long term prognosis.
Retirement Calculators 201: Growth of Savings
For the sake of this discussion, let’s say that savings accounts come in the following forms:
- checking or savings accounts that may generate some amount of interest which is taxed as regular income
- investment accounts may grow or decline over time depending upon how the underlying investments perform and the growth is taxed as capital gains when withdrawals are made
- tax-deferred retirement accounts (which may grow or decline over time depending on how the underlying investments perform), such as 401k’s and traditional IRA’s, which are funded with pre-tax money and are untaxed until withdrawals are made, and then taxed as regular income
- tax-free accounts (which may grow or decline over time depending on how the underlying investments perform), such as Roth IRA’s, which are funded with after-tax funds and whose growth is never taxed
There are some issues that arise when trying to model these savings accounts in a retirement calculator. Read more...
Retirement Calculators 202: Calculating ΔIE
Calculating ΔIE, which is income minus expenses, is a simple thing once annual income and annual expenses are known; however, defining income and expenses involves some complexities and this is where we can find significant differences in the approaches used by the designers of retirement calculators. Read more...
Retirement Calculators 203: Taxes
A complicating factor intentionally omitted from the discussion on calculating ΔIE is taxes, specifically income and FICA taxes. Taxes are an expense, but there is no standard way for treating taxes in the world of retirement calculators. Here are some of the approaches in use:
- Ignore them (often with some corresponding text to try to persuade the user that taxes don’t really matter)
- Ask the user to specify a tax rate and use that to simulate the effect of taxes on income and savings growth (some allow separate tax rates for income and savings growth), which naturally requires the user to determine and enter the correct tax rate(s).
- Ask the user to specify a tax rate that applies to withdrawals from savings while asking that same user to specify net (post tax) income rather than gross income. This also requires the user to determine and enter the correct tax rate and, further, to use that value to manually convert gross income to net income prior to entering it into the calculator.
- Perform detailed tax calculations and ask nothing of the user.
Retirement Calculators 204: Keeping Track of Your Savings
If the calculator treats all savings as one common pool and simply doesn’t try to model the unique characteristics of separate types of savings, then all it has to do is add annual ΔIE to the old balance to get the new balance. A subset of these calculators recognize that withdrawals from savings can be a taxable event and apply a tax burden on all withdrawals based on the user-supplied tax rate.
The calculators that manage the various savings accounts separately must deal with considerably more complexity than those that model savings as a single pool of money. Read more...
Retirement Calculators 301: Sensitivity of Long Term Projections to Simplified Accumulation Phase Modeling
This discussion is moot if you’re already retired or quickly approaching retirement. Otherwise, it might be pertinent to you. The reason it matters is that the accuracy of your portfolio estimate at the start of your retirement is a function of how accurately your accumulation phase is modeled. Inaccuracies in this estimate will then be magnified over the distribution period because of the law of compounded returns. Read more...
Retirement Calculators 302: Determining Retirement Income Requirements
This is another area where we can differentiate low fidelity from high fidelity calculators. Many calculators only allow expenses to be defined by a single summary-level value while others allow for expenses to be defined to whatever level of detail the user desires. Some of the latter category of calculators go so far as to model college educations, home mortgages and other property-related expenses, healthcare expenses that vary greatly from early to late retirement, one-time expenses, and so on. Clearly, the first group of calculators belongs to the low fidelity category while the second group meets at least one important criterion for a high fidelity calculator. Read more...
Retirement Calculators 303: Sensitivity of Long Term Projections to Tax Handling Approach
You may be of the opinion that it’s a waste of time to attempt to model taxes because we don’t know what Uncle Sam is going to do to tax rates in the future. I believe the correct approach is to use the best information available (i.e., the current tax code) to establish a baseline plan, supplement that with a sensitivity analysis based on potential future tax increases, and then revisit your analysis from time to time to make updates based on any new information that has become available.
With that said, retirement calculators generally fall into one of three tax-handling categories: 1) those that perform detailed tax calculations, 2) those that account for taxes based on user-specified tax rates and 3) those that ignore taxes. If you go with one of those that perform detailed tax calculations, you simply do not have to concern yourself with taxes and can be reasonably confident that they’re being accounted for accurately. If you go with one of those that estimate taxes based on user-specified tax rates, then you have to accurately determine the proper tax rate to use and how it might vary over time and enter that into the tool, knowing that most tools only accept a single rate that applies to the entire modeling period. Finally, with the set of tools that ignores taxes altogether, you can either choose to ignore taxes yourself, or you can figure your tax rate and then manually adjust your income and expense inputs to the tool to account for taxes. Read more...
Retirement Calculators 304: Sensitivity of Long Term Projections to Pooled vs Specific Savings Accounts
Previously, a question was posed on whether it makes a significant difference whether a retirement calculator models savings accounts separately according to their unique characteristics or simply models them as a common pool. The test case described in this article, involving only the distribution phase, is enlightening. Read more...
Retirement Calculators 305: Ease of Use Issue
Most free retirement calculators are truly easy to use once you’ve done your homework and have translated all of your financial details into the form they’re expecting. This commonly boils down to annual contributions to savings, annual income during your retirement years and when it will begin, your retirement income requirements (i.e., retirement expenses), tax rate, rate of return on savings, inflation rate and life expectancy. Armed with these numbers, it’s usually a simple matter to plug them into the calculator and get quick results.
Retirement calculators do the math that integrates the data described above into a long term projection. That’s difficult for most people to do on their own and, hence, retirement calculators can be useful tools. The rest of the story, though, is the downside of the statement “once you’ve done your homework and have translated all of your financial details into the form they’re expecting”. This article explores the rest of the story. Read more...
Retirement Calculators 306: Analysis Methods
Once your data has been entered, the tools will use it along with a set of assumptions (default or specified by the user) to form some sort of view into the future to enable assessment of the plan over the long haul. There are a variety of methods employed by retirement calculators to form these projections, but the primary methods are fixed rate, Monte Carlo and historical analyes. All have their strengths and weaknesses, and none are perfect. Read more...
Retirement Calculators 307: Unknowns and Risks
No calculator can forecast the future with certainty because the calculations are always based on assumptions related to certain variables that are unknowable in advance, and this translates into some degree of risk in relying on their predictions.
Topping the list of unknowns are:
- Inflation rate
- Future performance of your investments
- Your lifespan
- Government policy changes
These unknowns translate into retirement planning risks, and some retirements calculators are more adept at helping you address these risks than others. Read more...
Retirement Calculators 401: Life Cycle Models
We’re all affected by things beyond our control, such as inflation, government policy (e.g., tax rates, Social Security benefits), the rising cost of healthcare and the volatility of certain investments. But we also face many decisions in life which are largely under our control. We weigh the pros and cons, make trade-offs, and try to assess how one decision interacts with other decisions. This includes job and career, getting married, having children, college educations for your children, housing choices, mortgages, how much to contribute to retirement accounts and what type of retirement accounts to have, healthcare, how much life insurance to carry, getting a divorce, when, where and how to retire, when to start collecting Social Security benefits, which survivor benefits to select with your defined benefits pension, long-term care, and on and on. The decisions we make on many of the above items have a direct bearing on our income stream and our taxes which, in turn, affect our discretionary spending power.
Without the right tools, putting all the pieces of the financial puzzle of our lives together is bewildering if not impossible. Read more...
Retirement Calculators 402: Consumption Smoothing
Consumption smoothing is a term used by economists to describe a consistent standard of living for an individual regardless of family size and the ebb and flow of non-discretionary expenses. In other words, it enables you to maintain the same level of discretionary spending (i.e., consumption) while you’re raising a family, paying your mortgage, paying for college educations, when you become empty nesters and when you’re retired. The rare tools with the capability of performing consumption smoothing can be very helpful in making lifestyle decisions, but you have to be careful in determining the level of trust to place on consumption-smoothed expenses. Read more...
Retirement Calculators 403: Personal Financial Models
So, finally, I’m going to introduce the concept of a personal finance model (PFM) and then attempt to explain the power and convenience that such a tool can provide. A PFM should not be confused with personal finance software because those products tend to be money management and tax preparation tools. A PFM should be like a trusted friend that you can go to with virtually any issue. Read more...
Case Study #1: An early-retired couple investigating ACA (Obamacare) health insurance and Roth conversions
In this case, we have a married couple who has just taken early retirement at age 55 with $1,000,000 in tax-deferred savings and $100,000 in regular (taxable) investments. They’ll have no income in retirement other than Social Security beginning at their full retirement ages of 67. They’ll buy an ACA health insurance policy with annual premiums of $10,000. The benchmark cost of an ACA Silver policy in their area is $7500, so they should quality for a subsidy as long as their AGI is within the qualifying limits. Their other expenses total $40,000, excluding income taxes.
They have two big questions:
- What do we have to do to ensure that we get the ACA subsidy?
- Does a Roth conversion make sense in our case?
We’re going to set up three scenarios in Pralana Gold to answer their questions. Scenario 1 is the baseline case where we specify the basic information described above. Scenario 2, which is based on Scenario 1, will answer their first question and Scenario 3, which is based on both of the other scenarios, will answer their second question.
Case Study #2: The long-term impact of a bear market
Here’s the case of a 60-year-old couple who has just started their retirement while planning to live off their investments for the next 35 years. No sooner do they begin their retirement than the coronavirus pandemic strikes and the market plummets. They have $1,000,000 in tax-deferred savings, $100,000 in taxable savings ($25,000 of which is unrealized capital gains) and $100,000 in cash, and $50,000 in annual expenses. Their combined Social Security benefits at their full retirement age of 67 is $24,000.
In this analysis we want to use PRC Gold to investigate the long-term prognosis of this couple’s financial future. Let’s assume inflation will be steady at 3%, the money in taxable and tax-deferred accounts is invested equally in stocks and bonds and that the market going forward behaves exactly as it did beginning in 1929.
Fortunately, this couple has two years of expenses in cash so they don’t have to make withdrawals from either taxable or tax-deferred savings immediately. When this money runs out in two years they’ll both be 62 and will have the option of starting their Social Security benefits to offset about half of their annual expenses, and the rest will have to be taken from taxable or tax-deferred savings. We’ll set up an optimized withdrawal order such that PRC will model withdrawals from tax-deferred savings up to the amount of the standard deduction and any additional withdrawals that are required will be taken from taxable savings.
by Stuart Matthews, designer of the Pralana Retirement Calculator
Sequence of Returns Errors in Retirement Calculators
Did you know that projections done with a fixed rate of return have roughly a 50% chance of being correct even if they’re based on a completely accurate average rate of return? Half the time those projections will be too low but the other half will be too high, and sometimes way too high.
We’re talking about “sequence of returns” errors. Read more...
Case Study #3: When can I retire with confidence?
This is not strictly a case study because it isn’t related to any specific set of circumstances; however, it does relate to establishing the conditions under which a person can retire and is a generic treatment of that topic.
Pralana Gold has the ability to calculate the date you and your spouse can retire with a 90% probability that your money will outlast you, based on Monte Carlo simulations. To enable this calculation you need to specify your demographics and life expectancy, the initial balance of all your accounts, characterize your portfolio (i.e., asset classes, asset allocation, rates of return and standard deviations), and characterize your income and your expenses. You don’t have to worry about estimating tax rates because Pralana Gold performs detailed federal, state and FICA tax calculations for you.
If you’re already good to go at the current date, Pralana Gold will tell you so; otherwise, it will give you the calculated future date. It applies to you and your spouse, if you’re married.
Alternatively, Pralana Gold allows you to specify a target retirement date and it will then calculate the amount of combined retirement income you and your spouse will need to earn in your retirement years to ensure that your money outlasts you with a 90% probability. If you’re already good to go and don’t need any income beyond what you’ve specified, it will tell you so.
If your underlying assumptions are conservative, these calculations will go a long way toward helping you retire with confidence and sleep well, which is the ultimate objective behind the design of Pralana Gold.
Case Study #4: Consumption Smoothing
Joe and his wife, Jane, are both 50 years old, both are working and hope to begin a traditional retirement when they reach age 60. By then, their mortgage should be paid off and their two kids should be finished with college. Anticipating many grandkids and lots of family activities at their house, they do not plan to down-size; additionally, they do plan to do quite a bit of international travel in their retirement years. Clearly, they’ll need a good deal of income to support their retirement. Still, though, they wish to maximize their standard of living in the meantime. Their big question is: how can they accomplish these somewhat competing goals without having to get into a mode a worrying excessively about whether their money will outlast them?
PRALANA | The Mercedes-Benz of Retirement Calculators
Study the trade-offs. Explore the what-if’s.
Retire with confidence. Sleep well.
Financial planning at all levels involves navigation of some forbidding territory, but we’ve designed a tool to help you through it.
Pralana Consulting LLC, Plano, TX
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