Spending changes after new update
I just installed the new ESPlanner update 2.35.0, and noticed something that strikes me as a bit odd.
Just before installing it, I ran reports of three scenarios (automatically updated to 2017): my basic profile (which assumes level discretionary spending until age 100, 0% real return on investments), and two more optimistic profiles which assume a 1% real return and an annual 1% and 2% decline in real spending (i.e. a nominal increase less than inflation). Then I installed the update, and ran the same reports. In each case, there was an approximate 3% increase in discretionary spending. While not exactly a staggering amount, this seems significant enough to require a major change in taxes, social security, or SOMETHING to explain it, and I’m not aware of anything like that.
There’s nothing very fancy about the scenarios. I plan to work two more years, my wife and I already take social security, we plan to stay in our house until we die (a pretty optimistic assumption, admittedly), we have three immediate annuities, and a mortgage that will be paid off in 11 years. Arbitrarily, I assume a 20% increase in taxes in 2020, and a 20% reduction in social security benefits in 2034. And there are a few other assumptions, like unrealized capital gains. But I changed none of these between running the reports on the old and new version of ESPlanner. At no time does the program generate life insurance, or force a change in discretionary spending (other than the programmed 1% or 2% decline), or anything fancy. Any thoughts?
Tue, 01/17/2017 - 13:02
I asked one of our engineers
I asked one of our engineers and here is his reply. I've not had a chance to look at my own case to see if there are significant changes.
My discretionary spending decreased by 0.5%.
My AGI decreased, in part, because the actual Social Security COLA of 0.3% is lower than the estimated COLA of 3.0%, i.e. inflation. My income taxes increased because the brackets actually increased by only 0.8% versus the estimated increase by inflation of 3.0%. Further, the personal exemption didn’t even increase, it stayed at $4050 per person, rather than the estimated inflation increase.
So, I don’t think his experience going to be true in general. It really depends on the specifics of each situation.
He’s just going to have to look into the details of what changed. What inflows increased and what outflows decreased.
Tue, 01/17/2017 - 16:16
You have an annuity right? I
You have an annuity right? I see one of the fixes in this release was:
- Fixed the discounting of the actuarial present value of annuity payments and the annuity load.
Is your annuity substantially different now?
Sat, 01/21/2017 - 09:43
I took a pair of reports for
I took a pair of reports for a particular scenario, one just prior to the update, and one just after, and pored over them until I was blue in the face. In each year, my discretionary spending increases about 2.8% after the update. The assumptions were identical. My total taxes ROSE 0.23% in the later report, as one would anticipate from your engineer’s observation that tax brackets did not rise as much as projected, i.e. after the update more of my income would be taxed in high brackets. But first, this is a very small difference; and more importantly it is in the wrong direction, increased taxes should decrease my discretionary spending.
The only other observation I made is that the estate details show that my regular assets this year are 0.1% lower after the update, in spite of identical assumptions. At (arbitrarily) age 90, they are 0.6% lower. There is NO change in any year in retirement assets or home equity. Increased spending would of course lower my assets; but why just the regular assets, and not the retirement accounts? And both scenarios seem to leave me exactly broke at age 100.
I’m just not knowledgeable and/or smart enough to figure out what’s going on. I’m probably missing something obvious, since your engineer noted only a tiny difference in his reports after the update. If I send you the two example reports, could you go through them and see if you can figure it out?
Sat, 01/21/2017 - 15:22
Sure. I can take a look at
Sure. I can take a look at your reports if you put them in a support ticket.
Sat, 01/21/2017 - 18:05
Okay, support ticket created,
Okay, support ticket created, example before and after reports uploaded. Thanks!
Sat, 01/21/2017 - 11:18
Okay, I think I may have
Okay, I think I may have found the source of the problem, though I don’t understand it. For clarification, I should add that my upgrade was from 2.34.0 to 2.35.0; I did not upgrade to 2.34.1, because it was my understanding that this didn’t affect me.
On “the social security benefits” detail page, the older report shows both mine and my wife’s benefits dropping by about 3% a year, the new one shows NO decline, hence the increase in discretionary spending. (Actually, they both show a 20% drop in 2034, which I programmed on the assumptions page, but that’s irrelevant.) It’s almost as if I had switched off the increase for inflation, then switched it back on after the upgrade, though I don’t even see where you can do that, and I certainly didn’t intentionally do it.
Since 2.34.1 fixed only some social security issues, is my not doing that upgrade the source of the problem? I’ve read the release notes for 2.34.1, and really don’t understand them. But the problem seems to be that 2.34.0 was not adjusting social security benefits for inflation, which would have been a major error, and I don’t get the sense that 2.34.1 fixed anything that significant. Or did it?
Wed, 01/18/2017 - 00:14
I haven't had a chance to
I haven't had a chance to investigate, but the annuities are all immediate, that is, fixed monthly nominal dollar payout for life, so I don't see how that could be a problem, if I haven't changed my inflation assumption. And the two main points your engineer makes--social security benefits rising less than expected, and less of your income staying in lower tax brackets, because the tax brackets didn't rise as much as expected--would actually decrease discretionary spending, unless I'm not thinking straight. I'll try to look into the details this weekend, and let you know if I can figure it out.
Sun, 01/22/2017 - 16:35
Version 2.34.1 fixed an
Version 2.34.1 fixed an obscure problem of decreasing real dollar value of Social Security benefits in 2.34.0. That problem only occurred if you overrode the actual current year with the following year. So last year, that would mean overriding to 2017. After Jan. 1st, the input to the Computation Engine would look the same as if you forced the current year to 2017 in 2016 causing 2.34.0 to show the issue again.
The Social Security benefits are correct in 2.35.0 and yes, this accounts for the increase in discretionary spending.