This is an in-depth breakdown of the Planner system assumptions.
The Planner is intended to help you create a long term financial plan, understand the interdependencies among plan elements, and make sound decisions. Each plan is founded on multiple assumptions such as asset growth rates, inflation, and income tax legislation. As a result, the projected estate value, estimated account values, withdrawals, and tax liability will fluctuate.
PlannerPlus is currently a forward--looking projection engine. The calculations and projections move forward each month. For this reason, we recommend using tax software or working with a tax professional for current year tax planning.
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.
All system assumptions are documented
By clicking "My Assumptions" toward the top right of any page, you can reveal a link to view all System Assumptions. When you apply the average assumptions, the Planner computes the linear average of the optimistic and pessimistic assumptions.
To view the default settings, please refer to this article: Default Assumptions.
As needed to cover monthly expenses not paid from available income and required minimum distributions the Planner implements a default order for withdrawal as follows:
Within each category, the growth rate on accounts will influence the order of withdrawals. Accounts with the lowest growth rate will be used first, allowing accounts with higher growth rates to continue to grow for the longest period of time. 529 savings are not included in the withdrawal sequence and must be explicitly disbursed as one-time withdrawals.
Start Dates and Stop Dates
Start Dates become effective in the month you turn the age selected. Stop Dates are effective through the month you are the age selected.
When you select "Retirement Date" as an end date, the expense or income ends immediately prior to the retirement date.
"Today's dollars" or "future dollars?"
Any amount the system displays as a future value is in “future” dollars.
Most of the values you enter in your plan are assumed to be "today’s dollars," also referred to as present value.
Any item entered in the Basic Budgeter and the PlannerPlus Budgeter should be entered in "today's dollars" and will be inflated year over year.
There are a number of areas which require future values, listed below. For these expenses you will need to determine the future value prior to entering the expense in your plan.
Future primary residence for a planned relocation
Future real estate purchase
Lump sum pensions
Depreciation of Assets
In Planner, you currently have the ability to model depreciation of "Other Assets."
The default rates of return in the Planner are Optimistic and 5% Pessimistic 2%, and PlannerPlus subscribers have the ability to change the rates of return. We ask that you enter nominal rates to represent your expected return.
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 your Excess Income.
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.
You have the ability to view your deductible contributions in the Insight > Taxes > Federal Tax Deductions Chart.
Excess income is money that is not earmarked in your plan to be saved or spent and can be accessed through My Plan > Money Flows > Excess Income.
You will have “excess income” anytime your monthly income from ALL sources – including Required Minimum Distributions (RMDs) – is higher than what you have specified for your total monthly expenses. Some years, you may earn more than you have designated in your budget, so you will need to tell the tool what to do with the excess income.
Note: The tool will automatically default to choose "Other Savings" for your excess income, a default account. If you set up custom savings accounts in My Plan > Savings and Assets, you will be able to designate one of your own After - Tax accounts for your Excess Income. We suggest that you do this, as rates of return can have a significant impact on your plan results
You can view your Excess Income in the Insights > Surplus/Gap chart.
For PlannerPlus users, income taxes are estimated using all currently available state and federal tax rates and tax brackets through longevity. Or, because tax rates may rise at the end of 2025, you can switch to project your federal taxes using higher rates in the Assumptions section of My Plan. (For this, the system will employ the 2017 rates and brackets for 2026 taxes onward.)
In addition, 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. Free users have a flat 3% state tax rate modeled.
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.
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.
PRO TIP: Set yourSocial Security COLA to zero in your Assumptions and head over to your Insights > Income and Expenses > Income Chart to view your projected benefits in today's dollars.
Taxation of Social Security
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 2022 standard deduction amounts to approximate US national averages. The amount of Social Security income that is considered taxable is based on publication 915 guidance.
The estimate for Medicare expenses modeled in Planner is inclusive of premiums and out-of-pocket expenses. These include dental costs, but not vision. As future health care costs are difficult to estimate, we rely upon the average cost by state data from Medicare.gov in our projections. PlannerPlus subscriber medicare estimates are state-specific. Additionally, PlannerPlus users can model different policy, health, and premium level options to more accurately estimate medicare expenses. Bear in mind that plans are state specific. Estimates used in Planner are based upon of assumptions for:
Your plan election, e.g. A/B Only, Medigap, Medicare Advantage, etc.
Your health status indications: health condition maps to excellent, good, or poor
Premium level if you select a Medigap policy
Income after 65 (for IRMAA calculation)
The values are adjusted from today using the medical inflation rate in your plan.
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.
PlannerPlus subscriber 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.
PRO TIP: Set your medical inflation rate to zero in your Assumptions and head over to your Insights > Income and Expenses > Estimated Expenses Chart to view your projected medical costs in today's dollars.
The median yearly cost of care in an assisted living facility in the United States in 2020 was $51,600. Based upon this data, the Planner's default modeling includes between $1,433 and $4,300 per month in today’s dollars. The system will apply these long-term care costs to the last 28 months of your life (and your spouse's) if you do not indicate that you have a long-term care policy, plan to purchase a long-term care policy to cover long-term care, expect a family member to help care for you, or predict that you will not ever need long-term care. You might want to research costs in your area and at your comfort level and make adjustments you feel appropriate.
You can view these long-term care expenses in your Insights > Income and Expenses > Estimated Expenses Chart
You have the ability to change the long-term care assumptions in My Plan > Expenses > Long Term Care.
If you select "Plan to use home equity to fund the costs," the Planner will model the long term care costs described above. You may want to go to the housing page and estimate when the care would be needed and how you might want to access your home equity. Common solutions include getting a reverse mortgage to fund in home care and selling your home to fund a nursing home.
If you select "Have a long-term care policy" or "Plan to purchase a long-term care policy," the Planner will model 20% of the long-term care expenses in the last 28 months of your life (or your spouse's), as if the insurance pays the other 80%. In mathematical terms, instead of the default, the Planner will add between $286 and $860 per month in long term care costs. Take care to include the cost of any long-term care insurance in your recurring expenses.
If you have medical coverage or don't need long-term care, you can select "Will never require any long-term care." The Planner will assume that you have no long-term care expenses.
Bear in mind that long-term care expenses are subject to the medical inflation rates in your plan assumptions.
PRO TIP: Set your medical inflation rate to zero in your Assumptions and head over to your Insights > Income and Expenses > Estimated Expenses Chart to view your projected long-term care costs in today's dollars.