General

Your goal for retirement planning is to fund retirement through your and your spouse’s projected longevity with both optimistic and pessimistic assumptions. Your goal is preset using projections for the average life spans of people your age in the United States.

You may see your longevity number and update it in My Plan > Profile & Goals

Income from Work is defaulted to grow at 3% annually.

You can customize the growth rate in My Plan > Income

All values you enter are assumed to be “today’s” dollars other than future one-time contributions, one-time distributions, and annuity purchases. Any amount the system displays as a future value is displayed in “future” dollars.

Start Dates become effective in the month you turn the age selected. End Dates are effective through the final month you are the age selected.

Accounts

For PreTax accounts (401ks, IRAs, Other PreTax), contributions reduce your taxable income, returns are not taxed, and all distributions are taxed as income. These accounts are also subject to required minimum distributions.

Starting at age 72, the calculator estimates required minimum distributions based on IRS Publication 590-B. Excess withdrawals not used to cover monthly expenses are assumed to be added to the “Other Savings.”

For Roth accounts, contributions do not reduce your taxable income since these accounts are funded with after-tax dollars. However, the model assumes no taxes on the growth and distributions from these accounts.

For HSA accounts, contributions are treated as pre-tax and will reduce your taxable income for federal taxes and all states except California and New Jersey. Returns are not taxed except in California and New Jersey. All distributions are assumed to be used on healthcare expenses and so are not taxed. These accounts are not subject to required minimum distributions.

For 529 accounts, contributions are treated as post-tax for federal taxes, but as pre-tax and will reduce your taxable income in all states except California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina. Indiana, Utah, and Vermont offer tax credits for contributions rather than tax deductions and are treated as such. Returns are not taxed. All distributions are assumed to be used on education expenses and so are not taxed. These accounts are not subject to required minimum distributions.

At this time, the model does not assume any penalties for early withdrawals.

If you model a Roth conversion, the amount being converted is treated as taxable income at the age selected for conversion. Simulated new Roth accounts grow at specified rates of return and withdrawals are tax-free.

Other Savings are considered after-tax accounts. Contributions do not reduce taxable income. For Plus users, you can choose to use the average cost basis methodology to estimate long-term realized gains on investment returns and account distributions. Alternatively, you can treat all investment returns as ordinary income. For non-Plus users, all investment returns are assumed to be long-term gains realized on a monthly basis taxed at the prevailing capital gains rate, and account distributions are not taxed.

Contributions

All monthly contributions are added to your total savings as long as income exceeds expenses. Amounts entered are assumed to grow with inflation annually. At this time, there are no contribution limit rules in place that will cap contributions based on account type.

You can update your contributions and specify savings into individual accounts in My Plan > Accounts and Assets

As needed to cover monthly expenses not paid from available income and required minimum distributions, the planner first deducts from available after-tax savings before drawing from PreTax, then Roth, then HSA savings. 529 savings are not included in the withdrawal sequence and must be explicitly disbursed as one-time withdrawals.

Excess Income

Excess income is defined as income greater than monthly expenses and contributions to savings. In any given month that you have excess income, the planner will save 100% of this amount in after-tax savings unless an alternate rate is set by you on My Plan > Work and Other Income. The rest is assumed to be spent.

Additionally, system savings events (excess income, excess RMDs, relocate/refinance proceeds) result in contributions to a default after-tax savings account that grows at a low rate of return. It is recommended you specify which account these amounts should be deposited to on My Plan > Work and Other Income as the rates of return can have a significant impact on your plan results.

Taxes

For PlannerPlus users, income taxes are estimated using either standard deductions for single/married filers or itemized deductions, whichever is optimal each year for both federal and state income tax calculations.

Itemized deductions include mortgage interest, state income tax, and all deductions listed on My Plan > Expenses, including property tax; for Federal Income Taxes, the Tax Cuts and Jobs ACT (TCJA) $10,000 cap on State and Local Taxes (SALT) is enforced.

2021 tax table data is used for current year estimates; standard deduction and rate table amounts grow with inflation annually.

The amount of Social Security income that is considered taxable is based on publication 915 for federal income tax and state-specific rules for state income tax.

For non-PlannerPlus users, a blended federal-state income tax table is used with 2021 standard deduction amounts to approximate US national averages. The amount of Social Security income that is considered taxable is based on publication 915 guidance.

Social Security

Future Social Security estimates are subject to wage offsets as described here. Additionally, the model will assume the surviving spouse will receive 100% of the deceased’s benefit, if greater.

Lump-Sum Pension payments are assumed to be taxable on receipt and are deposited into after-tax savings. You can modify these defaults in My Plan > Income.

Medical

Default medical out-of-pocket expenses after 65 are estimated using national averages provided by Medicare.gov assuming “Excellent” health. Having or planning to get Medicare supplemental insurance assumes the low premium Medigap policy with drug coverage plan.

PlannerPlussubscriber medicare estimates are state-specific. Additionally, PlannerPlus users can model different policy, health, and premium level options to more accurately estimate medicare expenses. Income Related Monthly Adjustment Amounts (IRMAA) are factored into Part B and Part D premium calculations for high-income PlannerPlus users, appropriately.

Long Term Care

If you do not indicate that you have a long term care policy, plan to purchase an annuity or long term care policy to cover long term care, plan to use home equity or a family member to help care for you, or predict that you will not ever need long term care, then the system will apply costs to the last 3 years of your life. You can make these changes in My Plan > Expenses.

If someone already has or plans to get a reverse mortgage, their home equity is not included as part of their wealth.

Rates for the optimistic scenario:

Inflation is set to 2.00% per year. You can customize this number in My Plan > Expenses.

Social Security COLA rate is set to 2.00% per year. You can customize this number in My Plan > Income.

Health Care inflation is set to 2.50%. You can customize this number in My Plan > Expenses.

Customize rates of returns on all savings accounts in Accounts and Assets.

Housing appreciation is set at 3.00%. You can customize this number in My Plan > Housing.

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