Scenarios

Scenario 1 - How much can I leave to my kids or to charity?

This scenario assumes you want to maximize the estate you give to your children or leave to charity.

1. Set the Age at Death for both spouses to 85 (or your typical life expectancy)

2. Optionally, to access the equity in your principal residence, setup one or two Downsize Events or consider a Reverse Mortgage.

3. Run the Estate optimizer.

The optimizer experiments with your retirement fund contribution and withdrawal rates, CPP/QPP and OAS start ages in an attempt to maximize your Estate in the Final Year. Once the optimization has finished, try changing the CPP and OAS start ages manually to see if you can improve on the Net Estate Value.

If your Net Estate Value is negative in the Final Year it means that your plan is underfunded. Reduce your Annual Budget and/or Charitable Donations or increase your Retirement Age(s).

Scenario 2 - When can I retire?

This scenario assumes you want to know how early you can retire without running out of money.

1. Set the Age at Death for both spouses to 100 (or your maximum life expectancy). If you are younger than 50, the Final Year will max out at 50 years from now.

2. Optionally, to access the equity in your home, setup one or two Downsize Events or consider a Reverse Mortgage.

3. Run the Retirement Age(s) optimizer.

The optimizer adjusts your Retirement Age(s) then maximizes your Estate, then adjusts your Retirement Age(s) again until your Account Balances approach zero in the Final Year. If you have a spouse, their Retirement Age is also adjusted. If the optimizer has changed your Retirement Age(s) significantly, you may be asked to re-run the optimizer to obtain a better result.

Scenario 3 - How much can I spend without running out of money?

This scenario assumes you want to spend your last dollar on the day you die.

1. Set the Age at Death for both spouses to 100 (or your maximum life expectancy). If you are younger than 50, the Final Year will max out at 50 years from now.

2. Optionally, to access the equity in your home, setup one or two Downsize Events or consider a Reverse Mortgage.

3. Run the Budget optimizer.

The optimizer adjusts your Annual Budget then maximizes your Estate, then adjusts your Annual Budget again until your Account Balances approach zero in the Final Year. If the optimizer has changed your Annual Budget significantly, you may be asked to re-run the optimizer to obtain a better result.

Scenario 4 - How much can I give without running out of money?

This scenario assumes you want to give as much as possible to charitable causes during your lifetime without running out of money.

1. Set the Age at Death for both spouses to 100 (or your maximum life expectancy). If you are younger than 50, the Final Year will max out at 50 years from now.

2. Optionally, to access the equity in your home, setup one or two Downsize Events or consider a Reverse Mortgage.

3. Run the Donations optimizer.

The optimizer adjusts your Charitable Donations then maximizes your Estate, then adjusts your Charitable Donations again until your Account Balances approach zero in the Final Year. If the optimizer has changed your Charitable Donations significantly, you may be asked to re-run the optimizer to obtain a better result.

A personal note: chances are you are using this spreadsheet because you have done well financially. Even if you don't want to be as radical as this scenario proposes, be generous with your money. Being generous is good for the heart, protects against greed and, with charitable tax incentives, is less expensive than you think.

Scenario 5 - Succession Planning

This scenario tests if a surviving spouse will have sufficient funds to fund their retirement if the other spouse passes away.

1. Set the Age at Death of the surviving spouse to 100 (or their maximum life expectancy)

2. Set the Age at Death of the deceased spouse to an earlier age

3. Check that Net Estate Value and Account Balances are positive in the Final Year (the life expectancy of the surviving spouse)

The wealth transfer can be seen in the Net Worth and Estate Value chart. If tax planning has been done correctly, assets should transfer to the surviving spouse tax free. In the Cashflow Sources chart, there is typically a drop in pension income due to the loss of the deceased's OAS, CPP changing to a CPP survivor benefit and the loss or reduction of the deceased's other pension plans if any.

Scenario 6 - Stress Test

The previous scenarios allow for minimal flexibility. A poor sequence of investment returns or other unexpected expenses early in retirement may derail your projection.

Because of this, it is a good idea to build some flexibility into your projection. The amount of flexibility required is a personal thing and depends on your risk tolerance, the volatility of your investments and the ability to scale back your budget during tough times.

The Stress Test determines how much your projection is overfunded or underfunded in year one.

1. Press the “Test” button

2. The result is shown in the status area.

If your projection is overfunded, it can tolerate a loss or unexpected withdrawal of that amount in year one and still be Healthy. If your projection is underfunded, your accounts are short that amount in year one, needed to have a Healthy projection. The percentage shown is the percentage of year one account balances.

To add more flexibility to your projection, increase your Retirement Age(s), decrease your Budget and or your Charitable Donations. In cases where your projection has home or real estate equity, you may want to tap into that by Downsizing or through a Reverse Mortgage.

After making a change, run the Estate optimizer, and then run the Stress Test again to get a new result.

Update your numbers and rerun your projections annually using Mark's latest spreadsheet. Also check out our Scenarios Video Tutorial.