How to Use IW Retirement Planner

Retirement planning is an empowering process, regardless of age. The process of planning not only fosters a sense of financial security but also a roadmap for financial well-being.

IW Retirement Planner streamlines the retirement planning process into two stages, straight-line forecasting and Monte Carlo stress testing. This combined approach leverages the strengths of both retirement planning techniques, providing you with a comprehensive toolkit for making informed decisions.

The following guide takes you through the steps of creating a retirement income plan.
step 1Gather Your Finances and Expenses
Before you begin, you need to gather your financial data. This includes your current savings and investments.

You will also need to factor in an estimate of your expenses during retirement. A detailed estimate, preferably using a retirement expenses worksheet is recommended. You can also roughly estimate your retirement expense needs with Morningstar's 7-step method or Fidelity's rule of thumb method below. Retirement Income Replacement Rate Rule of thumb to roughly estimate your retirement income needs

If you plan to use a detailed estimate, health care expenses—over time—will likely be your largest expense. You can more accurately estimate these expenses with Vanguard's Health Care Cost Estimator, which forecasts health care and long-term care costs in retirement.
step 2Perform a Straight-Line Forecast
Straight-line forecasting assumes consistent year-to-year investment growth, from the beginning to the end of retirement. This forecasting approach is helpful for determining the funds needed to sustain a comfortable retirement lifestyle and evaluating the necessary contributions to achieve your desired goals.

Please review the following sections to gain an understanding of how best to use IW Retirement Planner when creating your retirement plan.

Spending Strategies
IW Retirement Planner supports both fixed and flexible spending options. The right choice between these approaches depends on your financial circumstances, risk tolerance, and personal preference. Each strategy has its pros and cons, so it's important to select the one that aligns best with your needs and goals. Spending Strategies Choose your Spending Strategy and enter your Annual Expenses in retirement

  • Fixed spending assumes that retirees have limited flexibility in their spending and can be beneficial for situations where a large portion of a retiree's budget goes towards necessities. While it offers stability and simplicity, it may not maximize your spending potential or adapt to changes in your financial situation. Use one of the replacement rate methods from Step 1 to estimate the income you will need to live comfortably in retirement.
  • Smile spending is an age-dependent strategy for retirement spending and is based on research that suggests retirees on average tend to spend more in the early and late stages of retirement and less in the middle years. It allows retirees to align spending with their lifestyle preferences and needs at different stages of retirement. Use a replacement rate method outlined in Step 1 to estimate your initial expenses.
  • Dynamic spending is best suited to retirees who are open to reducing expenses during lean years in exchange for the ability to spend more initially and over their retirements as a whole. It can be beneficial for situations where a smaller portion of a retiree's budget goes toward necessities.

    Dynamic spending starts with a withdrawal of 5% of your total investment portfolio. Each subsequent year adjusts the prior year's spending for inflation and then adjusts to "guardrails" of 4% and 6%. If the amount falls below 4% of the portfolio, the actual withdrawal rises to 4% of the portfolio. Conversely, if the amount is above 6% of the portfolio, the withdrawal is limited to no more than 6% of your portfolio.

All spending strategies are indexed to inflation. See FAQ for additional information.
Extra Savings
Income bucket savings are automatically increased during pre-retirement years using the growth rate specified for your buckets. You can supplement your savings by clicking the Extra Savings button to add additional pre-retirement savings.

Extra Expenses
Apart from your regular monthly expenses, you might require other one-time or recurring expenses like paying off debt, taking a memorable family vacation, covering long-term care expenses, or contributing towards a child's education or wedding. You can include these expenses by clicking the Extra Expenses button, and adding additional post-retirement expenses to your retirement plan.

Other Income
In addition to your income buckets, you have the option to incorporate one-time or recurring income events like inheritance, lump sum pension distributions, and royalties. To include these contributions, click the Other Income button, and add both pre and post-retirement income into your retirement plan.

Part-time employment can be included to supplement retirement income or explore the feasibility of retiring earlier. Full-time employment can also be included for continued spousal employment.  Be sure to include any employment between your retirement date and your spouse's retirement date, if there is a gap. For instance, if you plan to retire in 2040 and your spouse plans to retire in 2045, make sure you include your spouse's employment from 2040 to 2045.
Social Security Maximizer
The Social Security Maximizer feature simplifies decision-making by determining your optimal Social Security filing strategy. It evaluates more than 700 filing strategies to identify the one that maximizes lifetime benefits within your retirement plan.

Social Security Maximizer Quickly find the Social Security filing strategy that maximizes lifetime benefits

This powerful tool takes into account retirement, spousal, and survivor benefits, and incorporates key benefits rules including early benefit reductions, delayed retirement credits, earnings test adjustments, RIB LIM, and restricted application and deeming rules.

Simply click the Social Security Maximizer switch and run an analysis of your Social Security filing options. Results of the analysis can be reviewed with interactive charts, accompanied by an estimate of the additional benefits dollars you would be eligible for, and a way to apply the optimized strategy into your plan.
Tax Optimization
IW Retirement Planner provides three different ways to experiment with the most effective way to lower taxes for your situation. Test your plan by experimenting with the Withdrawal Strategy, Roth Conversion, or Tax Minimizer features, and potentially save thousands in taxes. Tax Optimization Strategies Choose one or all three tax optimization strategies

  • Withdrawal Strategy allows you to choose which bucket to withdraw income from first, Tax-Deferred or Taxable Investments. For example, try selecting Tax-Deferred Investments if 401Ks and Traditional IRAs constitute a large portion of your retirement savings, as it could significantly reduce the tax impact of Required Minimum Distributions later in retirement.
  • Roth Conversion allows you to experiment with converting Tax-Deferred Investment funds to Tax-Free Investments, up to a chosen federal income tax bracket. The best times to consider Roth conversions are typically in lower tax years like shortly after retiring, before drawing Social Security and before starting Required Minimum Distributions. Funds converted to Roth are taxed as ordinary income but can reap benefits later in retirement by reducing the tax impact of Required Minimum Distributions.
  • Tax Minimizer attempts to lower taxes to a specified federal income tax bracket by replacing Tax-Deferred Investment withdrawals, which are taxed as ordinary income, with Tax-Free, or Taxable Investments which are taxed as long-term capital gains. This feature can lower taxes by replacing just enough ordinary income to stay within a chosen tax bracket.
Reviewing Plan Outcomes
IW Retirement Planner makes it easy to visualize your straight-line forecasting outcomes. User-friendly charts and dashboard summaries provide valuable insight into your retirement plan, and can be used to avoid potential pitfalls and maximize built-in tax optimization features.

For example, the Federal and Capital Gains tax charts can be used to identify if and when tax optimization strategies can be applied to reduce your tax liabilities, and the Medicare Surcharges chart can pinpoint years where you could incur IRMAA surcharges.

For a deeper understanding of your financial plan, you can also explore comprehensive actions taken by the IncomeWize modeling engine, year by year, across your entire retirement plan.
Explore Straight-Line Forecasting Examples
Single tax filer with extra savings and other incomeSingle Tax Filer Example
Married couple with employment, extra savings, and extra expensesMarried Couple Example
Married couple with Roth conversions and long-term care policiesRoth Conversion Example
Married couple with Social Security MaximizerSocial Security Maximizer Example
step 3Perform a Monte Carlo Stress Test
Monte Carlo stress testing is a more advanced method of retirement forecasting that involves simulating multiple possible outcomes by explicitly including volatility. These simulations provide a clearer picture of risk by introducing different combinations of investment, inflation, and other growth rates, which naturally factor in both positive and negative investment years, including significant losses of 30 percent or more.

To perform a Monte Carlo stress test, simply click the Monte Carlo Stress Test switch and run a simulation with a thousand computer-generated scenarios to check the risk level of your straight-line plan. Results of the stress test can be reviewed with interactive charts along with a summary that includes your plan's probability of success and retirement plan confidence by year. Interpreting Your Stress Test Score Monte Carlo stress test Probability of Success scoring

Interpreting Your Stress Test Score
Your financial goals and retirement lifestyle preferences play an important role in understanding your Probability of Success score. For those with modest retirement goals and a willingness to make lifestyle adjustments, an 85% success rate may suggest a reasonably sound retirement plan. However, if you have ambitious goals or want to maintain a higher standard of living in retirement, aiming for a success rate of 90% or above can offer a larger financial cushion for added security.

Additional reading:
Goldilocks and the "Just Right" Probability of Retirement-Planning Success
Explore Monte Carlo Stress Testing
Married couple with Smile spending strategyMarried Couple Example
step 4Adjust Your Financial Plan
Based on the results of your retirement planning, you may need to adjust your financial plan. For example, if your analysis shows that you are likely to run out of money during retirement, you may need to adjust your savings and expenses, or refine your investment strategy.

Similarly, if your analysis shows that you are likely to have more money than you need, you may be able to retire earlier, leave a larger inheritance for your loved ones, or adjust your retirement goals to include more travel and other activities.
step 5Track Your Progress
It is essential to regularly review and adjust your retirement plan based on changes in your financial situation, market conditions, and life circumstances.

You can save your retirement plan at any time by clicking the Save Session button. This action generates a link that can be saved as a bookmark for easy access in the future. You can use the bookmark to make adjustments and monitor your progress from any device at any time.  Be sure to update your bookmark each time you make changes to your plan.

Monitor Different Scenarios
The Save Session feature can also be used to save and monitor various planning scenarios for their effects on your retirement plan. This includes conservative or optimistic investment growth scenarios, as well as unexpected major events.
Useful Tips