Methodology
The math behind the plan
One engine. Your assumptions. The pages below are how those numbers turn into a year-by-year path. Educational software — not tax, investment, or legal advice.
01
Time value of money
Each year the nest grows first, then cash is taken out. Taxable, pre-tax, Roth, and HSA balances use different mixes: taxable follows your stock/bond/cash weights; pre-tax is tilted toward bonds; Roth and HSA are tilted toward stocks. The rate for a sleeve is the weighted average of the returns you entered. Dividends on taxable accounts are income, not extra growth on top of the total return.
02
Spending inflation
Target spending and essential spending both rise with the inflation rate you set — default 3%. Optional “smile” spending dips in mid-retirement and rises later. A smoothness setting caps how much spending can jump year to year so the path does not cliff. One-time goals can be marked to inflate or stay nominal.
03
COLA (Social Security and pensions)
Social Security in the plan is an annual amount that inflates with the same inflation rate you set — a simple COLA. If you model a benefit trim in a future year, that cut applies from that year on. Pensions inflate only if you marked them as indexed; otherwise they grow at a flat 2% as a conservative stand-in for a typical cola-lite pension.
04
Tax brackets
Ordinary income (wages, RMDs, pre-tax withdrawals, Roth conversions, taxable pensions) is run through current federal brackets, with a standard deduction and extra deduction after 65. Long-term gains and qualified dividends use the 0% / 15% / 20% capital-gains thresholds. Net investment income tax is 3.8% above the NIIT MAGI line. State tax uses published tables for the state you pick, including whether that state taxes Social Security or retirement income. This is an educational projection, not a tax return.
05
Medicare IRMAA
Once someone is 65, IRMAA is layered on Part B (and the same MAGI brackets for Part D). Medicare uses MAGI from two years earlier, so the plan stores MAGI and applies it with a two-year lag. Filing status is married-filing-jointly while both spouses are alive, then single. IRMAA is a surcharge on premiums, not income tax, and it is added to the year’s total drag.
06
RMDs
Required minimum distributions start at 73, or 75 if the date of birth is 1960 or later. The amount is the prior pre-tax balance divided by the IRS Uniform Lifetime divisor for that age. RMDs come out of pre-tax accounts before other withdrawals, count as ordinary income, and are available to spend.
07
Roth conversions
If you turn conversions on, each year the engine moves pre-tax money to Roth up to the ordinary-income ceiling you chose (12%, 22%, or 24%), after counting Social Security, pension, RMDs, and dividends already in the year. It will not fill past that room. You can bound start and stop ages. Conversions raise tax this year so later RMDs and heir tax can fall — that trade only shows on Pro.
08
Sequence of returns
The main path uses your assumed returns every year. “If markets crash” replays the same spending and tax need against published calendar-year stock, bond, and cash returns (2008, 2000–09, 1973–79), blended to your mix, then returns to your assumed rates after that stretch. Monte Carlo draws 200 pairs of stock and bond returns (about 16% and 7% volatility, correlation −0.2) around the means you entered. Free includes one preview; unlimited paths are on Pro.
Want the sketch, not the write-up? Open the planner.