Plynty tips and tricks Flashcards
A benefit of using Plynty is that your plan is (or can be) updated every day.
Plynty recalculates your plan every time you open it.
If you have linked your investment accounts, Plynty updates your account balances every day.
As a result, your plan is always up to date. If you pay attention, you will notice that income and expenses vary slightly day-to-day as a result of changes in the value of your portfolio.
1/8/2020
How does a change of year impact Plynty?
Currently, Plynty calculates on a calendar year basis. If you’re watching closely, you will probably see your projected income in retirement drop by one or two percent.
Plynty currently calculates on an annualized basis. A side-effect of this is that for the entire year, from January 1 through December 31, Plynty assumes that a full year’s contribution to investment accounts is yet to be made.
When the year changes, there is one fewer annualized contributions to be made, causing the projected income in retirement to drop.
1/12/2020
How does reaching another birthday impact Plynty’s calculations?
Currently, this has no impact. Plynty’s calculations are based on the calendar year only and are not affected by where we are in the year. Effectively, your plan is calculated as though your birthday is January 1.
1/8/2020
How can Plynty help you manage your transition fund in retirement?
This process should be performed at least annually, but probably no more often than monthly. We consider a quarterly evaluation to be adequate and prudent.
Determine what your transition balance should be and compare it to the amount you currently have. Plynty’s default assumption is that your transition funds should be equal to 5 times the projected spending amount per year during retirement.
At this point, you have options depending on your spending strategy.
Stick with Plynty’s numbers
This is a reasonable strategy if you’re comfortable with Plynty’s projected Income (the amount you can spend in a year).
If you have less in transition funds than you calculated above, sell securities to bring the balance up to where it should be. Note that in a down market Plynty will automatically calculate a lower projected annual spend (the donut graph income) which will make the calculated size of the transition fund smaller. As a result, you’ll sell less in a down market. The opposite is also true, Plynty’s projected annual spending will rise in an up market, increasing the size of the transition fund calculated above.
Flexible balance in transition account
The transition account provides (by default) five years of spending power. If the market is down, you have the option to allow your transition fund to shrink, waiting for a stronger market to bring it back up to its full balance.
1/13/2020
Housing costs can change significantly during retirement.
If you are currently paying on a mortgage but will pay it off before you retire or early in retirement, you will enjoy a significant decrease in your retirement expenses.
You can model this in Plynty by tapping “Expenses” then “Housing Expenses” and zeroing “Principal & interest.”
You can eliminate your mortgage payment by getting a reverse mortgage as well.
1/12/2020
You can confirm that your linked account balances are up to date.
Tap the “hamburger” menu icon then “Financial Portfolio.” Make sure “Linked Accounts” is selected. You will see a list of your linked accounts. Each account will have an item indicating when it was last updated. Note that balances may lag by a day depending on the timing differentials between when the account balances were updated and when Plynty retrieved those account balances.
A future version of Plynty will notify you via a pop-up or email when linked accounts have not recently updated.
1/12/2020
How to model debt expense in Plynty.
There is currently no designated item for debt service in the retirement expense section. Probably the best place to capture what you expect your non-mortgage debt spending in retirement is in the “Other” category of Nonessential Expenses.
This is another area where you can make a significant impact on your required spending in retirement.
Add up the amount that you are typically spending each month on consumer debt such as credit card debt. By ensuring that these debts are retired before you enter retirement, your retirement cash flow needs can be reduced by that amount.
Vehicle loans are a special case for some. If you expect to periodically purchase a vehicle on credit during your retirement years, an allowance should be part of your planned retirement expenses.
1/13/2020
How Plynty determines the retirement date.
Plynty calculations assume that you will retire on January 1 of the year in which you reach your retirement age.
[Confirm this - is it the year in which you reach retirement age or the year after?]
In a worst-case scenario, the plan for a user whose birthday is on December 31 will calculate as though retirement occurs one year (less one day) earlier than it happens.
If your birthday is in the second half of the year your projected results will be more accurate if you add 1 to the age at which you will retire.
1/12/2020
Modelling an inheritance in Plynty.
In general, including inheritance in a retirement calculation is not a great idea. The timing and the size of the inheritance are seldom, if ever, precise.
If you have reason to believe that you will receive a windfall prior to retirement, you can create a savings account to model it.
There is currently no way to model income that begins after retirement occurs (except in the case of a planned annuity).
1/12/2020
How Plynty accounts for market fluctuations.
When your investment portfolio values change, either because they are linked accounts or because you update your balances, Plynty recalculates your plan. The amount shown for Income would have approximately a 50/50 chance of being sustainable throughout retirement if the current number was assumed for your entire retirement.
This is important because it is a key difference in Plynty’s approach. Most tools attempt to provide you with a single number for your retirement spending. As a result, they tend to recommend a lower spending amount than you are likely to maintain because they want a 90% or higher probability of success. This is dangerous because even a plan with a 99% probability of success can fail. Constant monitoring is required to ensure that nothing has changed.
Plynty, on the other hand, recalculates your income every time you access it. This is much more realistic and more consistent with the way most people think about their money. They don’t spend base on some picture that was developed in the past, they look at their current situation and spend accordingly.
Plynty’s income amount is the amount of income (or spending) available to you for the next year, starting today. Even though there is only a 50/50 chance of maintaining this spending until the end of the plan, it will adjust tomorrow so that there is still a 50/50 chance of success and will do so every day in the future. The effect is that your plan will always succeed by adjusting the amount you can spend going forward.
Using Plynty to model a “down” market that occurs about the same time one retires.
There is currently no automated way to do this, but here’s a way you can estimate the impact.
- Tap the “Income” heading on the app.
- Find the sum of the incomes in the Savings section. This is the income that’s being projected to be available from your savings and investing.
- Choose the percentage market drop you want to model. For example, what would happen if the market dropped 20% at about the time you retired.
- Multiply the total income from step 2 by the percentage chosen in step 3.
- This is the amount by which your projected income would drop. Subtract that amount from Plynty’s projected income to see the projected income should the market drop by the chosen percentage.
1/12/2020
Plynty’s default modeling assumptions.
- Plynty assumes a real rate of return on your investments of 5%. We believe that this is a reasonable real rate of return for a portfolio invested entirely in a broad market stock index fund. If you allocate a portion of your investments to bond funds, actively managed funds, funds with high expense ratios, or individual stocks, you should use a lower real rate of return.
- Plynty assumes a life expectancy of 95. It calculates income (spending) so that your savings (investments) will run out on your 95th birthday.
- Unless you have a very good reason to believe that your life expectancy is less, you should probably not lower this number.
- There are many reasons that people living today may live longer than 95 years.
- The true impact on your plan of life expectancy is that the “variable” portion of your income will stop, but the “fixed” portion will (or should) continue. Although Plynty does not project beyond life expectancy, fixed income streams like Social Security, lifetime pensions, and lifetime annuities will (or should) continue.
1/12/2020
Spending strategy 2 is an approach that spends more in early retirement. Here is a way Plynty can help with this approach.
- Determine your fixed lifetime income. This includes Social Security, lifetime pensions, lifetime annuities, and other income that is for a known amount that only stops when you die. This is what you will have left to live on when your investments run out.
- Decide at what age you are willing to accept that income for the rest of your life. For example, if you want to be able to spend more until you reach age 80 and are willing to settle for the income from Step 1 from that age on, 80 will be your number.
- Enter this number for your life expectancy by tapping the hamburger menu icon, Settings, Planning Assumptions, then the planned life expectancy item.
- Your plan will now end at age 80. Note that while this is called your “life expectancy,” in the strictest definition, it is the age at which your investments will be depleted based on the income (spending) shown by Plynty. From that point on you will have only the fixed income from Step 1 to live on.
1/12/2020
What does the term “real” mean, as in the real rate of return or real income?
“Real” indicates that the values are net of inflation. In other words, it is the nominal rate less the inflation rate.
If an investment earns an 8% return while inflation is 3%, the true value of your investment is growing at 5% (8% return minus 3% loss to inflation).
If your income grows 3% per year while inflation is 3%, your buying power remains unchanged.
Plynty uses real numbers (as opposed to nominal numbers) for these values because they are easier to relate to. For example, it’s easier to think of needing $75,000 per year to live on than $150,000 per year 25 years down the road.
There are impacts of this approach, including:
- It won’t be unusual for your investments to grow somewhat faster than Plynty projects since, in “nominal” (actual) terms, their growth will be affected by inflation.
- You will need to revisit your retirement expenses from time to time since they will change over time due to inflation. For example, your food, clothing, and transportation expenses will grow over time.
- By keeping tabs on your projected expenses in retirement, you will create a personal inflation rate that is applicable to only you, rather than having to rely on the Consumer Price Index (CPI) or some other default inflation factor.
- Revisiting and adjusting your retirement expense projections on an annual basis allows you to apply your personal inflation profile to your plan, and to adjust your retirement budget for any changes in your thinking of what’s important to you in retirement.
1/12/2020
What is longevity risk?
Retirement calculations have many factors that contribute to making results less reliable than many such tools would have you believe. Longevity risk is at the top of this list.
Longevity risk simply means that you have no idea of how long you will live and that projections are extremely unlikely to match reality as a result.
Most people will tend to focus on the “living too long” aspect of longevity risk. How will I manage if I live longer than my plan? This can lead to spending less to allow for something that has a low probability of happening.
The other side of this risk is just as important. Dying too soon will likely mean that you haven’t lived as well as you could have, and you’re leaving a larger estate than you intended.
1/13/2020
