How Monte Carlo Works in WealthTraceMonte Carlo analysis estimates how often a retirement plan “works” by running many possible market paths and checking whether the plan runs out of money in any of them.What WealthTrace simulatesFor each simulation, WealthTrace generates a year-by-year set of total returns for every investment in the plan. Returns vary from year to year based on: the investment’s [...]
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168 ArticlesI have duplicates of some investment accounts after linking them. How do I delete the duplicates?
You can delete the duplicates and they should not come back. You can read more about deleting investment accounts . If there are two accounts that look the same, delete the one with the older date. If the duplicate is exactly the same (same date and same balance), delete the one that has a warning symbol next to it if there is one there. If both have the same balance, same date, and no warning [...]
I ran a Roth conversion scenario and applied the same amount to convert to my Roth account in my plan. The results are very different from the scenario. Why aren't they the same?
The Roth conversion scenario will assume that the account the conversion is going into will have the same annual return as the account the money is coming from. This way you are comparing apples to apples with the conversion scenario. If you add a conversion to a Roth investment in the actual plan, the program will not assume that the annual returns are the same. It will still use the annual [...]
Where should I enter accelerated RSU vesting?
Enter the value of the vested restricted stock units as a taxable cash inflow in Cash Flow Inputs for the year they vest.Because RSU vesting is generally treated as ordinary taxable income, it should not be entered as an investment account contribution.What happens after vesting may need to be modeled separately:If the shares are retained, increase the balance of the appropriate investment [...]
In the Cash Flow Distributions section, the result of subtracting the 'Total Taxes & Tax Penalties' and 'Total Expenses' lines from the 'Total Income, Investment Growth & Cash Inflows' line does not equal the 'Surplus/Deficit (Net Change in Portfolio)' figure. Why is this?
This is due to showing projections in today's dollars. The 'Surplus/Deficit' row is calculated by subtracting the ending balance from the beginning balance of investments. This calculation takes into account the purchasing power lost due to inflation. This will not always tie out with the method of subtracting all expenses from income because that calculation does not take into account the [...]
I want to optimize Roth conversions for my children to give them the most after-tax money possible.
How “Maximize the Investment Value for Beneficiaries” worksWhen you pick Maximize the Investment Value for Beneficiaries, the optimizer stops focusing primarily on your lifetime outcomes and instead prioritizes how much after-tax value your beneficiaries are expected to receive from what you leave behind.That changes the math in two big ways:It evaluates outcomes from the beneficiary’s perspective [...]
When I have an expense, which sources of income are used to cover it first? What about investment assets?
The order is as follows: Additional Cash InflowsSocial SecurityPensionsRequired Minimum Distributions (RMDs)Deferred CompensationTaxable/Tax-Advantaged GrowthTaxable/Tax-Advantaged PrincipalNon-Qualified Tax-Deferred GrowthNon-Qualified Tax-Deferred PrincipalQualified Tax-Deferred GrowthQualified Tax-Deferred Principal This is usually the most tax-efficient way to withdraw money. You can also from [...]
Do projected returns take into account any fund expenses or expense ratios?
The WealthTrace default returns do not include any annual fund expenses. What many people do is reduce their overall annual return projections by asset class. You can see how to do that . You can also be more specific and add the expense ratio to individual investment accounts or to every account at one time. Go for more information about this [...]
I have plenty of salary income left over to pay for an expense I entered in the Goals & Additional Expenses section. I am not yet retired. The expense starts next year. But this expense is being paid for out of my taxable investments and not my salary. Why is that?
You should only enter a goal/additional expense before retirement if the funds to pay for this expense will not come out of regular salary income. All expenses before retirement (Official Retirement Date Of The Plan) are first funded from contributions that would have gone to investments and then from the investments themselves. Note that the "Official Retirement Date Of The Plan" is determined by [...]
Are living expenses in retirement pre-tax or post-tax with regards to income, dividends, and capital gains?
They are before income, capital gains, and dividend taxes. The program calculates these taxes for you, both for federal and state. So make sure you do not enter an expense for income taxes, capital gains, or dividend taxes. This would be double-counting. However, you do want to create an expense for property taxes or other local taxes that the program does not account [...]