This post outlines the profile including specific constraints and some fixed variables. The database/profile is attached.

Good luck optimizing!

Best,
Brian
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Married (Tom and Alice), live in FL with 15 years left on a mortgage, 3 kids (2 who will go to college with special expenditures, a 529 plan and 2 weddings), different ages, earnings (Alice is self-employed), and retirement contributions for each, $80K in regular assets, $325K in retirement (tax-sheltered) accounts, both retire at age 65, currently planning to take Social Security at full retirement age (67), 2 changes of home allowed (one mandatory at age 95 for youngest spouse, one optional at retirement to any state, however with restrictions below) to free up home equity for end of life expenses, "assumptions" tab has all default values except for rate of return on regular assets (now at 5%) and these are fixed.

Fixed variables include:
• Everything in the "Assumptions" tab
• Earnings, retirement dates, employer retirement contributions (set to $1,000 per year and assumed to go along with a minimum of $2,000 in individual contributions for Tom, Alice does not have employer contributions as she is self-employed), current assets, Medicare start age
• Estate plans, ESPlanner recommendations for life insurance (e.g. use whatever the program recommends)
• Special expenditures for college and wedding: Jenny – college age 19-21 (2015-2017) $10,000 / year, Jessica college age 18-21 (2018-2021) $10,000 / year, weddings 2021 ($15,000) and 2025 ($15,000).
• Contingent planning is disabled (although the fields have been populated)

Constraints include:
• There is a pension ($14K annually) for Tom that is covered by Social Security and no inflation indexing. It does have a 50% survivor benefit. The reason I'm calling this out is that it increases by 5% each year. So users can choose $14K in 2030, $14.7K in 2031 or $15,435 in 2032. The user can pick any of these 3 options, but must match the format in the database.
• All retirement contribution amounts can be up to current legal limits. E.g. Roth contributions can be up to $5,500 / year for ages 49 or less and $6,500 / year for ages 50+. SEP IRA contributions can be up to 25% of Alice’s compensation. 401k (including Solo 401k) contributions can be up to $18,000 / year for ages 49 or less and $24,000 / year for ages 50+. While there are subtleties here, this is meant to simplify a bit.
• Housing – 2 changes of home are allowed. 1 is optional, 1 is mandatory
o Optional: At retirement for the youngest spouse or up to 5 years later (2032 to 2037). Can move to any state. Purchase price, homeowner’s insurance, and maintenance fees all fixed at 80% of the value of existing home factors at time of sale (e.g. $1,000 insurance to $800, $350K to $280K). Closing costs are 2% of the new home’s purchase price. 0% real appreciation rate. No mortgage (100% down payment) on new home. For property taxes, use the median tax rate values shown here: http://www.tax-rates.org/taxtables/property-tax-by-state and apply to new home’s purchase price. You do not have to include the optional move.
o Mandatory: at age 95 for youngest spouse (2062). This is preloaded as 1st change of home. Intent is to use remaining home equity for long-term care (LTC) and end of life expenditures. Monthly rent $5,000 and other monthly rental expense $1,000. If you choose to make use of “optional” change of home, move this information to 2nd change of home.

Optimization based on:
Living Standard Per Adult (highest and smoothest). The default profile has a low LSPA of $56,170 and a lifetime LSPA of $3,022,020.

Use release 2.30.0 (or most current) and the challenge ends in one month on May 8th.

This is open to all ESPlanner users so please feel free to join in. The database is attached below.

Glad you each are joining this. Best of luck!

Brian

Along the way, if anyone has questions, ideas they want to share, interim results, or other, please do so.

For those who are just now seeing this, feel free to join in. There are a bit over 3 weeks left in this optimization challenge and plenty of time to participate.

Best,
Brian

Status update...

We're almost halfway through this. Still plenty of time if you want to join in.

The default profile has a low Living Standard Per Adult (LSPA) of $56,170 and a lifetime LSPA of $3,022,020.

This version can be improved by ~10% (so far) and possibly more with nearly smooth consumption.

I'm hoping for a breakthrough from one of ESPlanner's fellow optimization travelers! If you have questions, ideas, or interim results, feel free to share.

Best,
Brian

One week left in this optimization challenge which ends on May 8th.

My best option (highest and smoothest Living Standard Per Adult or LSPA) is:

- $59,787 (2015-18) +6.44%
- $60,582 (2019-21) +6.22%
- $63,046 (2022-end of life) +10.43%
- $3,321,010 (Lifetime total LSPA) +9.89%

All percentages are compared to the default profile.

The lifetime total can be much higher, but at a cost of reduced standard of living for many years.

Best,
Brian

Giving this a bump with 3 days left in the challenge...

Hope you can participate!

Best,
Brian

Final day...

Profile optimization is a powerful method to increase your standard of living significantly while managing your risk. By making one (optimized) set of decisions, this fictional family smoothed and increased their standard of living for life by 10%. To put this in perspective, this is equivalent to both spouses working 3 additional years with no other changes.

Best,
Brian

The challenge is over, but I thought of another way to boost this. Now up over 11%. This could be increased more with some additional effort.

My best option (highest and smoothest Living Standard Per Adult or LSPA) is:

- $59,835 (2015-18) +6.52%
- $60,609 (2019-21) +6.26%
- $63,945 (2022-end of life) +12.00%
- $3,362,637 (Lifetime total LSPA) +11.27%

All percentages are compared to the default profile.

If anyone is interested in doing this in the future, let me know. It's a great way to learn new ways to optimize your own profile and more fully leverage the power of ESPlanner.

Best,
Brian

Below is a summary of the optimization process for this challenge. Each optimization, of course, depends on the specific profile and constraints which are described above. Before digging into the optimized profile, look carefully at the original setup and challenge description.

Profile optimization makes use of the full suite of ESPlanner capabilities in an integrated manner to meet your specific goals such as maximizing your living standard while managing your overall risk. The thought process is different (as compared to adjusting an individual variable) as a change in one area has an impact in other areas. Understanding the specific profile's constraints and the interaction between different variables/changes becomes very important. Sensitivity testing helps here along with experimenting to see which changes are beneficial.

Optimization based on:

Living Standard Per Adult (highest and smoothest). The default profile has a low LSPA of $56,170 and a lifetime LSPA of $3,022,020.

This profile is most constrained in their early years due to special expenditures (college and weddings), children living at home, retirement contributions, life insurance premiums, 529 contributions, and a mortgage among other factors.

Process

First things first:

• Age 70 Social Security for both, test file and suspend for each spouse
• Late pension because family is not constrained during those years and this increases consumption for life

Housing choices:

Part of the challenge was intended to make housing a key consideration. This was split into two options:

• Optional change of home – when to move and where? Since this challenge is strictly being measured financially, there are two main home related costs – property taxes and state income taxes. After some research, LA was an ideal option with very low median property tax rates and low effective state income taxes at these income levels. Do this in first possible year to maximize benefits and free up assets.
• Late in life, move back to FL (since that is where they started) with no state income tax and, since they will be in an apartment or assisted living facility, no property taxes.

What’s next:

• Consider a deferred annuity. This could have been optimized further with additional effort. Idea was to take 10% of Tom’s tax-sheltered assets and invest in a deferred annuity earning 2% over inflation. This is a single life annuity with no survivor benefit (although many other options are possible) that begins when Tom turns 85 until end of life. Essentially this is a form of “longevity insurance”.
• Optimize 529 contributions and withdrawals to reduce regular asset constraints in early years. While a 529 can help, in this case because the family is constrained in regular assets, additional 529 funding should be avoided.

Retirement Accounts tab:

• At this point all remaining financial levers (for this challenge) are in the Retirement Accounts tab. However, there are many variables and even more combinations here. For example, age of last retirement contribution and first and last smooth withdrawals for both spouses. Contributions (amount, account type, year, sequencing), special withdrawals (amount, year, account type, sequencing), Roth conversions, percentage of non-annuitized assets to be spent, annuitizing assets, order of withdrawals, etc. for each spouse.
• Free up regular assets in early years by reducing retirement contributions for Alice.
• In their last decade or so before retirement, the family’s income pushes them into the next tax bracket. Consider retirement (401k/IRA) contributions during those years to lower their marginal tax bracket.
• Use a multi-year 401k/IRA to Roth conversion to reduce taxes throughout retirement
• Experiment with special withdrawals between retirement and age 70 to “bridge the income gap” before Social Security starts. Include Roth conversions during this period because income from other sources is lower to reduce taxes. May want to continue adjusting special withdrawals into later years.
• Experiment with key ages for first smooth withdrawal and percentage of non-annuitized assets to be spent. This can make the profile more tax efficient over the family’s lifetime.
• Generally keep regular assets at a modest level (e.g. emergency fund, needed liquidity) as the profile assumes a higher rate of return for tax-sheltered assets

There are numerous other changes that could be made. I wouldn’t be surprised at all if another $500, $1,000 or more per year in consumption could be created through additional optimization. At the same time, their overall risk should be lower with nearly $100,000 in guaranteed annual income in retirement, including COLAs, through age 100. When the deferred annuity starts at age 85, a full 90% of their annual income is covered before any withdrawals.

The attached database has the before and after profiles.

Best,
Brian