Comprehensive Retirement Calculator: How to Use the VeriPlan Financial Planner

Developing a Family Financial Plan with the advanced VeriPlan retirement calculator

The detailed and advanced VeriPlan comprehensive retirement calculator is personally customizable financial planning software that helps you develop your own comprehensive lifetime financial and investment retirement plan for your family. Functioning as financial decision support software, it automates millions of integrated projection calculations behind the scenes.

With VeriPlan you can improve your financial decision-making, because you are better informed about the implications of your decisions. VeriPlan demonstrates the value of improved financial practices within your particular situation and can save you many thousands of dollars.

VeriPlan automatically develops fully integrated projections of your lifetime income, expenses, debts, taxes, and assets. It gives you direct control over all the data and assumptions that underlie your lifetime financial plan. After any change that you make, VeriPlan will instantly project a revised lifetime cash flow and asset growth scenario for you.

The average person works about 2,000 hours per year for about 35 years (70,000 hours). Given just how very difficult it is to earn a good living and to develop financial security, it makes sense to spend more effort on your financial planning.

Unless you can afford an expensive financial advisor with access to professional grade financial planning and comprehensive future retirement calculator software, you cannot begin to do your own planning without VeriPlan. It is the most sophisticated do-it-yourself financial planning software available to home users.

VeriPlan’s How To Use worksheet

Most people are naturally impatient for results. With VeriPlan, you can develop a first-pass quick-start plan. Doing this, you get a general understanding of your lifetime financial projection, while you become familiar with VeriPlan’s rich, automated projection features and its personal DIY financial decision support capabilities. After that, you can refine your plan and compare alternative financial decisions as much as you wish.

Your action plan in a nutshell

1. Read the red-tabbed “Start Here” worksheet
2. Read this red-tabbed “How To Use” worksheet
3. Follow the directions below regarding how to develop your initial, “quick-start” lifetime financial plan.
4. Evaluate your projection with VeriPlan’s blue-tabbed graphics and the green-tabbed “Graphics Data” worksheets
5. Refine your plan and change assumptions, while comparing as many projections as you wish, as you iteratively converge on the financial plan that you intend to implement going forward
6. Make real life adjustments to your financial behaviors, portfolio, etc. that will put your planning intentions into effect
7. Monitor your progress periodically, update your data in VeriPlan, and analyze new financial decisions, as needed, in the future

The VeriPlan family retirement calculator instantly and automatically revises your projection with every entry you make. If you are highly impatient and want a quick look at what VeriPlan does with no refinements, just enter $100,000 for annual income on the yellow-tabbed “Income” worksheet and $60,000 for annual ordinary expenses on the “Expenses” worksheet. VeriPlan will automatically populate an entire lifetime income, expense, tax, and investment growth projection model from those two factors alone. Then, examine the blue-tabbed output graphics to see the results.

Develop your initial “quick-start” lifetime financial plan

Follow these steps to develop your initial comprehensive retirement calculator starter plan:

1. Save your VeriPlan file with a unique name, such as: “Pats-Plan_January-30-A”
2. Start with the yellow-tabbed “Income” worksheet, and move from left to right across VeriPlan’s yellow-tabbed user entry worksheets as your complete the steps below. At the top of the Income worksheet:
   • A) enter 1 or 2 users to set the single versus married filing jointly tax status
   • B) enter current ages and planned retirement ages for each user
   • C) enter current annual income information in Section 2 (Ignore the rest for now.)
3. At the top of the “Expenses” worksheet, estimate your total annual ordinary living expenses. Exclude debt payments, mortgages, savings, business expenses, and taxes, because these are automatically projected for you elsewhere in VeriPlan. (Ignore the rest for now.)
4. At the top of the “Financial Assets” worksheet, enter a “2” to choose the account totals data entry method. Then, enter separate dollar total estimates for your:
   • A) taxable bank and investment accounts
   • B) traditional retirement accounts
   • C) Roth retirement accounts
   • Note that while VeriPlan provides this quick and simple “asset totals by account taxability” method, you are strongly encouraged to enter each of your cash, bond, and stock financial asset holdings separately. When you enter your individual asset holdings separately, VeriPlan can automatically project investment costs, track asset tax basis, project long-term capital gains distributions, differentiate asset appreciation by cash, bonds, and stocks, automatically rebalance projections annually, and enable VeriPlan’s user portfolio rebalancing optimization tool.
5. If you own your primary residence, in Section 1 of the “Property+Debt” worksheet, use the first column of the table to enter information about your home. Provide at least this information about your home:
   • A) the property address as the identifier
   • B) current market value and approximate tax basis
   • C) for one or two mortgage debts and/or home equity line of credit debts, enter the current amounts owed, interest rates, and minimum monthly payments
   • D) enter annual real estate taxes and annual maintenance expenses (Ignore the rest for now.)
6. If you have any significant non-real estate debts, enter them in Section 2 of the “Property+Debt” worksheet. In the columns enter the amount owed now, the annual interest rate, and the required monthly payment. (Ignore the rest for now.)
7. At the top of the “Taxes” worksheet, use the pull-down menu to select your state of residence and taxation, which will trigger the automatic lifetime projection of applicable state income taxes. (Ignore the rest for now.)
8. At the top of the “Retirement” worksheet:
   • A) enter your expected monthly Social Security retirement payments
   • B) select the age for Social Security retirement payments to begin
   • C) if desired for a couple, enter a 1 to choose simultaneous retirement (Ignore the rest for now.)
9. In Section 3 of the “Tax-Advantaged Plans” worksheet, for each user, use the pull-down menus to choose the type of employee contribution retirement plan that is available through work. The default is already set indicating a willingness to make maximum contributions. (Ignore the rest for now.)
10. At the top of the “Asset Allocation” worksheet, select the method you would like to use. The quickest method is to enter 2, which triggers the asset allocation of the average investor. To specify your own cash, bond, and stock percentages, enter 3, and then select your percentages in the section for Method 3. (Ignore the rest for now.)
11. Skip the yellow-tabbed “Risk & Returns” and “Investment Costs” worksheets for now.
12. Evaluate your starter projection after saving the file with a unique filename:
    • A) Look at VeriPlan’s standard blue-tabbed graphics starting from left and right. Read the headings of these standard projection graphics, which all start at your current age and project out to age 100.
    • B) If you want to look at the underlying projection numbers used to draw the graphics, go to the green-tabbed “Graphics Data” worksheets further to the right, which contain all the data used to draw VeriPlan’s projection graphics.

Now that you have a starter plan, you can begin to refine it and to use it for your financial decision-making. The sections below will help you to understand how get the most out of the lifetime projection models that VeriPlan automatically develops for you.

Refine your financial plan in the VeriPlan comprehensive financial retirement calculator built on Excel

A VeriPlan “quick-starter” plan is like a suit off the rack in the store. It might be close to what you need, but it is not yet tailored to your particular preferences.

VeriPlan offers you these tailoring options, listed in the order of the yellow-tabbed worksheets. Each worksheet provides specific written guidance on how to use these features:

Income worksheet

• Add positive and negative income adjustments on a year-by-year basis for either earner
• Make adjustments for real dollar income growth rates
• Add and adjust income from IRS Form 1040 categories, such as alimony, rental income, royalties, partnerships, etc.

Expenses worksheet

• Add positive and negative adjustments on a year-by-year basis for major and extraordinary expenses
• Make adjustments for real dollar expense growth rates
• Develop a 24-month budget, including actuals and variances, using customizable categories

Financial Assets worksheet

• Convert to the individual asset holding method and enter up to 24 cash assets/funds, 24 fixed income assets/funds, and 99 stock assets/funds
• Using the individual asset entry method enables instant updating of all VeriPlan features related to cash, bond, and stock asset projections. In addition, it provides the necessary inputs for the tax optimized automated portfolio rebalancing tool on the Asset Allocation worksheet.
• Categorize assets by account taxability and enter current tax basis to track automatically future taxation in addition to automated asset appreciation projections
• Enter various investment expenses for each asset for automated lifetime investment cost analysis

Property + Debt worksheet

• Add all your valuable real estate and other properties to your projections
• Enter information about account taxability, tax basis, expected appreciation, costs, and taxes
• Enter debts including balances, interest rates, minimum payments, and higher payments
  to evaluate accelerated debt repayment on a debt-by-debt basis
• Utilize automated features to project future purchases and sale any real estate or property

Taxes worksheet

• Once you indicate your state of residence, VeriPlan automates the projection of all taxes across your lifetime
• You can change all tax information related to:
• rates for federal, state, and local income taxes
• differences between taxable income subject to federal, state, and local income taxes
• federal income tax exemptions and dependent deductions
• expected taxable adjustments from Form 1040
• itemized tax deductions in addition to automated deductions for interest and real estate taxes
• Social Security and Medicare payroll tax rates, long-term capital gains and NIIT tax rates and breakpoints

Move States worksheet

• Plan a future move to another state of residence
• VeriPlan will automatically switch all taxation at that point
• Taking into account A) differential state income tax structures, B) differential taxation of Social Security retirement benefits, and C) differential state taxation of traditional retirement withdrawals and RMDs
• Rationally analyze whether another state’s “tax grass might actually be greener” — particularly when retired

Retirement worksheet

• Since VeriPlan is a comprehensive joint retirement calculator for married couples, easily project dual Social Security retirement payments, including spousal benefits
• Analyze initial age of acceptance of Social Security retirement payments
• Enter retirement calculator information about your pensions, annuities, and deferred compensation
• Control pension, annuity, & deferred comp. taxes; Deposit payments into taxable, traditional, or Roth accounts
• Make adjustments for post-retirement expenses and set real dollar expense growth rates
• Add positive and negative adjustments on a year-by-year basis for retirement expenses
• Enter a Social Security retirement payments reduction factor, if desired

Medicare worksheet

• Understand the Medicare health insurance program
• Plan your Medicare Parts A, B, C, and/or D expenses
• Compare retirement healthcare expenses with your out-of-pocket costs while working
• As a sophisticated healthcare costs in retirement calculator, VeriPlan automatically projects IRMAA insurance subsidy reductions for high retirement income

Tax-Advantaged Plans worksheet

• Adjust contribution limits to employer sponsored retirement plans including retirement calculator employer dollar match contributions
• Project retirement calculator contributions for IRAs and 401(k), 403(b), 457, SIMPLE-IRA, SEP_IRA & federal Thrift Savings plans
• Project additional employer-side contributions up to overall legal maximums
• Project traditional deferred-tax contributions and/or after-tax/Roth contribution combinations
• Set VeriPlan’s total contribution limitation tool
• Understand how VeriPlan’s fully automated IRA and employer plan projection features
• Adjust future contribution limits for traditional IRAs, Roth IRAs, employer plans, ages, and penalties

Roth Analysis worksheet

• Set VeriPlan’s Roth contribution limitation tool
• Plan year-by-year conversions into Roth retirement accounts
• Understand the tax and investment tradeoffs between traditional and Roth retirement assets
• Develop a personally optimum strategy for contributions while working and conversions in lower tax years
• Understand the impact of Roth conversions on Social Security income taxability and IRMAA Medicare subsidies

Asset Allocation worksheet

• Access additional cash, bond, and stock asset allocation features including fixed lifetime percentages and equity percentages that decline with age
• Utilize the portfolio rebalancing tool to determine the geographic and tax location optimized allocation of your cash, bonds, and stocks across taxable accounts, traditional tax-advantaged accounts, and Roth tax-advantaged accounts

Risk & Returns worksheet

• VeriPlan is a sophisticated rate of return retirement calculator that allows you to test the impact of positive and negative asset class return assumptions either systematically or arbitrarily on an asset class basis
• Use the portfolio revaluation tool to model the impact on your portfolio of a near-term financial crisis
• Use the portfolio safety tool to see how long your expenses would be covered by cash and bonds in the absence of any income

Investment Costs worksheet

• Evaluate the lifetime impact of the various investment costs on your portfolio, if you have used the individual asset data entry method on the Financial Assets worksheet
• Enter reasonable cost estimates for management fees, trading fees, marketing fees, loads, and account custody fees
• Have VeriPlan develop projections with lower costs so that you can understand the lifetime impact of excessive investment costs

Where to enter various types of income

Users may expect a variety of types of income in the future. This lists where to enter different types of income within the complete VeriPlan comprehensive retirement calculator. Taxation is automated for each type of income entry.

The primary input point for ordinary income during normal working years is the yellow-tabbed Income worksheet.

• In Section 3, enter your current annual earned income that you would repeat until retirement. You can enter both employee wage and salary income and/or self-employment income for each person. Self-employment would include net taxable income from actively managed enterprises, including partnerships, LLCs and S corporations.
• In Section 4, you can make positive and negative year-by-year adjustments to your projected earned income, including annual adjustments above or below the rate of general inflation.
• In section 5, enter passive income sources that are taxed at ordinary income tax rates. Such passive income sources would include alimony, other gains
  rental real estate, royalties, partnerships, S corporations, trusts, farm income, and other such passive income sources.
• When you own rental properties directly, you should enter detailed rental real estate ownership information on the Property + Debt worksheet, and VeriPlan will automatically project lifetime taxable rental real estate income.
• In Section 7, enter expected future gifts to be received, inheritances, non-spousal beneficiary RMDs, and the receipt of other new assets in the future

The primary input point for ordinary income during normal retirement years is the yellow-tabbed Retirement worksheet.

• In Section 2, enter your Social Security retirement benefits and Social Security disability payments and ages when payments would begin
• In Section 3, you can include retirement calculator entries with pension, annuity, and deferred compensation payouts

VeriPlan’s tax-advantaged retirement plan input and analysis functionality is found on the yellow-tabbed Tax-Advantaged Plans worksheet and on the adjacent yellow-tabbed Roth Analysis worksheet.

• You (and your spouse) have the right to make traditional and/or Roth contributions to IRA accounts each year, and these contributions may affect your taxable income. The VeriPlan joint retirement calculator automatically implements IRA contribution rules and limitations. As a default, whenever the rules and your projected earned income and finances permit, VeriPlan will automatically make contributions into traditional IRA accounts. You can, of course, adjust this default contribution behavior.
• In addition to your right to make annual IRA contributions, you may also have a right to make annual contributions into the employer sponsored retirement plans that are available to you. Such contribution could also affect your taxable income. VeriPlan will automatically make contributions into your employer plans according to the various settings and parameters you select on the Tax-Advantaged Plans worksheet and on the Roth Analysis worksheet.

Regarding asset related income sources, VeriPlan has largely automated the projection of asset related taxable ordinary and long-term capital gains income.

• You would enter your current cash, bond, and stock financial assets on the yellow-tabbed Financial Assets worksheet.
• Because VeriPlan is a comprehensive retirement growth calculator for multiple accounts, for each such asset entry, you would properly code that account with respect to account taxability
  0 = a traditional deferred taxation retirement account,
  1 = a non-retirement taxable account, and
  2 = a Roth retirement account).

The VeriPlan comprehensive retirement calculator handles the lifetime projection of asset appreciation and associated taxation automatically.

• Cash and bond taxable ordinary dividend income are calculated from asset entries (Financial Assets worksheet Sections 1 & 2)
• Stock short- and long-term capital gains are calculated from asset entries (Financial Assets worksheet Section 3)
• Regarding interest income, ordinary, and qualified dividends, these vary by asset class. Cash and bond returns are automatically taxed as ordinary income within VeriPlan. It is unusual for bonds to have capital gains or losses, although this is possible in the short-term due to interest rate fluctuations.
• Regarding qualified dividends from stocks, in the right-most columns of the stock section of the yellow-tabbed Financial Assets worksheet you can enter annual percentage distributions assumptions by each asset holding. You can enter assumptions for either qualified dividends automatically taxed federally at the appropriate long-term capital gains tax rates or as non-qualified dividends taxed as ordinary income. Since most equity assets tend to be held for the long-term, the focus of such assumptions is normally on the qualified dividend percentage being reported out annually. Note also that the degree to which you focus on very low cost and low turnover index fund retirement calculator investment entries, setting these taxable distribution assumptions is of lesser concern.
• The VeriPlan RMD retirement calculator projects lifetime RMDs. Required Minimum Distributions and other traditional retirement account withdrawals are calculated automatically (see the Taxes and the Tax-Advantaged Plans worksheet) If RMDs are needed to fund negative cash flow, that happens automatically. If not, some or all of after tax RMDs are automatically reinvested into taxable account assets.
• Taxable asset withdrawals may be needed in negative cash flow years (See the Optimizations worksheet — “How it Works” section) As an overview, when annual cash flow is negative, VeriPlan will first deplete taxable accounts, then traditional retirement accounts, then Roth retirement accounts to fund the negative cash flow gap.
• On the Property + Debts worksheet, VeriPlan automates the future purchase and sale of residential homes, rental real estate, and other properties. For future sales long-term capital gains relative to the tax basis will be projected at the federal level, and after applicable capital gains taxes are paid, the net proceeds of the future sale will be automatically reinvested into future cash, bond, and stock financial assets according to your investment strategy settings. For non-rental homes and vacation properties, appropriate federal capital gains tax exclusions will be applied automatically.

Graphical output of VeriPlan’s comprehensive retirement calculator software

When you scroll to the right across VeriPlan’s colored tabs at the bottom of your screen, you will find VeriPlan’s blue-tabbed graphics. Note that the first blue tab that you find is titled “Graphics & Data.” This is where you can find the most detailed description of what VeriPlan’s individual graphics mean.

Ordered from left to right VeriPlan’s automatically generated graphics give you an accurate view of complex underlying retirement calculator output. Clear projection graphics present key information that a family general manager would want to know about the family business enterprise. In this case, you are the general manager, and the business enterprise is your family’s long-term financial affairs. The first graphics you encounter are associated with your family’s financial operations and profitability, while subsequent graphics focus on your family’s asset balance sheet. These are followed by additional graphics addressing specialized topics important to long-term family financial planning.

VeriPlan’s standard graphics (automatically updated with every user change)

• “Income”: Non-asset income — earned, pension, annuity, Social Security & other income
• “Expenses”: Ordinary living expenses with other planned & adjusted expenses
• “Debt Payments”: Personal debt payments
• “Personal Taxes”: Personal tax payments
• “Rentals + Property”: Income, expenses, debt payments, taxes, and cash flow from for rentals and other properties
• “Cash Flow”: Non-asset cash flow
• “Savings Rates”: Pre-retirement savings rates with investment-oriented debt repayments
• “Human Capital” Expected income and savings before retirement
• “Allocation”: Lifetime financial asset allocation
• “Total Assets”: Cash, bond, stock, property, and debts with cumulative assets lost to excessive investment costs
• “Asset Flows”: Net cash flow with cash, bond, and stock asset returns
• “Debt Owed” Personal, real estate, and business debt principal owed
• “Asset Taxability”: Taxable, traditional & Roth tax-advantaged account assets
• “Transactions”: Taxable & tax-advantaged account deposit and withdrawal transactions
• “Retirement Income”: Retirement income sources and pre-tax Required Minimum Distributions (RMDs) after Earner #1 retires
• “Withdrawals”: Withdrawal rates from cash, bond & stock assets
• “Retirement Shortfalls”: Cash flow shortfalls after Earner #1 retires including RMDs
• “Safety Margin”: Adjusted cash, bond, and stock coverage of necessary expenses without income
• “Value of Time”: Hourly value of income, expenses, and financial assets
• “Cost-Efficiency %”: Cash, bond & stock asset % returns net of losses due to excessive investment costs
• “Cost-Efficiency $”: Cash, bond & stock asset $ returns net of losses due to excessive investment costs
• “Sales Loads”: Lost returns on past and future financial asset sales load purchase fees
• “Life Expectancy”: Average U.S. male and female total life expectancy and remaining life expectancy by current age
• “Historical Returns”: U.S. real dollar asset class returns from 1928 to the most recent full year
• “Rolling Returns”: Annualized rolling 5-year real dollar asset class returns from 1928 to the most recent full year

VeriPlan’s constant purchasing power “real dollar” projections

VeriPlan uses real, constant purchasing power dollars with the long-term compounded historical consumer inflation rate removed. Real dollars allow your projected finances across the years to be easily compared. Throughout the VeriPlan inflation adjusted retirement calculator, you also will find numerous user inflation adjustment controls. If you expect that price inflation for a particular model factor might consistently vary up or down from average historical inflation or you simply wish to test your model for differential inflation, you can use these inflation adjustment tools. In most cases, however, this will not be necessary.

VeriPlan’s Excel retirement calculator with inflation, projects real dollars that have constant purchasing power. This allows you much more easily to understand how projected assets in different years might support your consumption. For example, if a bottle of beer costs a dollar today and your total assets are $100,000, then you could buy 100,000 bottles of beer. If in 30 years, you have accumulated $1,000,000 in real, constant purchasing power dollars with inflation removed, you could purchase one million bottles of beer. If instead, your projections used “nominal dollars” with the historical, compounded inflation rate of close to 3% included, then your projection would indicate $2,427,262. While that projection might make is seem like you would be much richer, alas you could still only buy one million bottles of beer. Constant purchasing power over time is what counts, and you only get that be taking the inflation factor out of nominal dollars to get real dollars.

Inflation (and sometimes deflation) are facts of financial life, but they are not systematically predictable. Making “nominal dollar” projections that include an inflationary component adds no value to projection modeling or financial decision-making — as long as you still have the opportunity to evaluate factor inflation that might vary from average inflation. To the contrary, nominal dollar projections that include inflation assumptions tend to confuse decision-making. Projections with inflation may create an illusion of growth, when the opposite might be true.
Obviously, future inflation rates — particularly unexpectedly high and sustained inflation rates — are a concern in personal financial planning. Asset allocation strategy can address these concerns. Some riskier assets, such as stocks and real estate, tend to do better in inflationary environments, because these riskier assets can be repriced in competitive markets. Cash and bonds tend to be more vulnerable to rising inflation situations, because markets reduce their value as inflation increases unexpectedly.

Use VeriPlan’s inflation differentiators carefully and sparingly

• VeriPlan’s use of real, constant purchasing power dollars means that you do not have to consider inflation in your lifetime projections, if you believe that you largely will be subject to whatever future AVERAGE CPI inflation turns out to be. When you use real, constant purchasing power dollars you simplify the mental task of interpreting future values versus current values. Of course, VeriPlan supplies numerous tools that allow you to evaluate higher and lower inflation associated with modeling components should you need them.
• With real, constant purchasing dollar projections, you do not have to make mental adjustments about the impact of inflation which tends to compound increasingly as the years add up. An inflationary dollar in ten years would different purchasing power than today. An inflationary dollar in twenty years will have different purchasing power compared to the dollar of today and that of ten years from now.
• Because individuals can experience differential inflation, throughout VeriPlan you will also find numerous user inflation adjustment controls. Please use these inflation adjustment differentiators carefully, sparingly, or not at all to avoid unreasonable significant distortions to your projections. The best approach is probably to ignore any inflation adjustments, until you have developed a relatively thorough financial plan in VeriPlan. Then, you can use selective inflation controls as “what if” testing tools.

Develop and clarify your financial goals with the VeriPlan household retirement calculator

Developing a lifetime financial and retirement plan is much more than just putting numbers into a financial planning software tool. Comprehensive lifetime financial planning is an iterative process wherein you:

1. establish financial goals and objectives,
2. make assumptions about the future,
3. model your lifetime finances in software, and
4. evaluate your opportunities and constraints.

As you study your opportunities and limitations in light of your personalized financial projections, you will refine your goals and financial plan. With a better understanding of potential opportunities and constraints provided by your customized VeriPlan financial projection models, you will decide what you intend to change or not to change in your real-life regarding your financial behaviors going forward.

Your initial usage of VeriPlan should be thought provoking and the most labor intensive. You will consider your objectives, load and refine your data, and test alternative assumptions. During this process, you will move iteratively toward the development of the “baseline financial plan” that you intend to implement. VeriPlan aids you in this planning process by allowing you to model your alternatives very quickly and make better informed decisions, as it hides the millions of calculations needed to quickly develop lifetime financial projection scenarios that are customize to your situation.

Once you have established your baseline lifetime financial plan, you challenge will be to implement those decisions in real life. After some period of time (e.g. months or a year), you could then update your information in VeriPlan to see whether you are on track toward achieving your financial plan. All data and parameters in VeriPlan are user-changeable, so you can continue to use it without requiring software updates, upgrades, or maintenance contracts.

Refine your financial plan with more complete and accurate information

More complete financial profile information and planning assumptions will help you to develop a better lifetime financial plan. While the actual data entry does take some time, most of the effort involves finding financial records and researching needed information. Few people already have well-organized financial information, and for many people, VeriPlan will provide the first consolidated picture of their financial affairs that they have ever had.

Evaluate alternatives with the VeriPlan comprehensive retirement calculator Comparison Tool

Once you have loaded relatively complete financial data and set your assumptions, you can begin to evaluate alternative financial decisions. By comparing one VeriPlan projection scenario to another, which uses somewhat different data and/or assumptions, you can evaluate the relative desirability of these alternatives. Through an iterative process of evaluating alternatives, you can refine the lifetime financial plan that you intend to implement. In general, to determine whether personal financial “Strategy A” or “Strategy B” is likely to be preferable to you, compare two VeriPlan projection scenarios to see which yields a better long-term financial result.

The VeriPlan personal and comprehensive retirement calculator tool is built on the Microsoft Excel spreadsheet engine. As with any other spreadsheet engine, any change that you make to one cell in VeriPlan will change the results of all other spreadsheet cells that are connected by the underlying logic. Therefore, spreadsheets do not automatically “save the state” of the model that existed just before the most recent change. Nevertheless, automated model comparisons are possible, if you first manually “save the state” of a projection model, before making further revisions.

The VeriPlan Comparison Tool consists of four orange-tabbed worksheets to the right of the green-tabbed “Graphics Data” worksheets. This comparison tool allows you to make comparisons between your projection models, if you follow these general instructions. Note that detailed instructions on how to do this are explained on VeriPlan’s first orange-tabbed worksheet titled “How To Compare.”

1. Develop a relatively complete initial projection model with all of your data and assumptions.
2. Manually select and copy all of the data that VeriPlan outputs from your projection model on the orange-tabbed “Copy From” worksheet and use Excel’s “Paste Special” function to paste only the output data values from your initial model into separate orange-tabbed “Paste Values To” spreadsheet within VeriPlan.
   • Using this “Copy” and then “Paste Special — values only” method will sever the connection between the underlying VeriPlan spreadsheet formula logic and the data that is output by VeriPlan.
   • This allows you to lock the “state” of the data values from your prior projection model.
3. After locking the prior state of the projection model, you continue to revise one or more assumptions and/or data inputs within VeriPlan to reflect any alternative financial strategy.
4. On the orange-tabbed “Plans Compared” worksheet, VeriPlan will automatically subtract the “live” data being output from your revised model from the “locked” data values of the prior baseline model. This allows you to review and evaluate the data output differences between any two lifetime projection models.

The differences between your current model and prior model are automatically displayed on the orange-tabbed “Plans Compared” worksheet. The “Plans Compared” worksheet uses the same format as the green-tabbed “Graphics Data” worksheet.

The red text above the column headers on the “Plans Compared” worksheet explains how to interpret positive and negative numbers in the groups of columns associated with a particular output graphic.

Note that this “Plans Compared” worksheet is the only part of VeriPlan that will show the differences between the two projection models. All the blue-tabbed graphics and green-tabbed data output worksheets will show the state of the most recent model and NOT the prior model that you copied for comparison.

In general, on the “Plans Compared” worksheet, when your subsequent changes to your projection model will cause differences in a particular column to increase, those numbers will be expressed as positive numbers in black text. Decreases will be expressed as negative numbers in red text (within parentheses.)

Using the VeriPlan comprehensive retirement calculator Comparison Tool for external copying and linking

There is another use for VeriPlan’s Comparison Tool features. You could build external spreadsheet logic in another workbook that will use VeriPlan’s output data. Some sophisticated spreadsheet users might wish to develop external spreadsheets for specialized purposes and link those spreadsheets to VeriPlan’s projection data output. This could be achieved by accessing the “Copy From” spreadsheet and selecting the entire sheet for copying or one you could select particular data output columns.

Then, open your external workbook and copy either the entire sheet or set of columns into a spreadsheet within that external workbook. If you used the “Paste Special – values only” method with the external workbook, then that data would be lack formatting and be static and unchanging. If you used the regular Paste function then the data copied could maintain the formatting, as well.

If you wish to have that external data be live and potentially update when the VeriPlan file is updated, you will need to use the Paste Link option. You can research this process online to understand how to maintain the link and keep the data synchronized over time. When you are linking data it is probably better to be selective in the data you wish to link rather than attempting to link the entire “Copy From” spreadsheet.

Interpreting differences between projection models

You should be careful when interpreting these “Plans Compared” numbers and think about how changes to your data and to your assumptions should have affected your model.
For example, increased income and increased expenses have the opposite effect on overall cash flow. When evaluating the differences between your two models, you should think:

1. I changed two assumptions in my model. I increased my income assumptions, and I see that the income column difference numbers are black indicating that income increased over the prior projection.
2. I also increased my ordinary living expenses assumption, and I see that the black expense column numbers show that the expense difference increased over the prior projection.
3. I also note that some of the income tax columns are also black, which indicates that higher income taxes would be paid on higher income.
4. Then, I further note that the projected cash flow and financial asset column difference numbers are red, which indicates a negative difference. This means that my projected annual cash flow would decline, and my accumulated financial assets would not grow as fast or perhaps might even decline in the future. I can evaluate whether the effects are significant by looking at the cash flow and total assets graphics.
5. Therefore, on net, the positive effect of increased income would be overwhelmed the effects of increased consumption expenses and increased income taxes.

You should also be aware that just because the model difference comparison numbers in a particular column might initially increase or decrease in earlier projection years, that does not mean that those numbers necessarily will continue to increase or decrease in subsequent projection years. Other factors in the model can cause the model differences to narrow and sometimes even reverse from positive to negative or negative to positive in the same column.

By scanning across all of the columns on the “Plans Compared” worksheet you can better understand the interactions between various factors. Often “single assumption change” comparisons are easier to understand, so it is often helpful to change one setting or assumption and then change it back to the original number or setting and then to change something else to understand the impact of doing something different.

You can make as many of these “one-off” changes as you want without having to recopy the whole model, as long as you change the number back to what it was before, before making another one-off change. After getting experience with this comparison tool, you should develop a mental discipline about what changes you are comparing. Taking notes on a sheet of paper can be helpful to avoid the situation where you evaluate model differences and then realize that you lost track of the changes that you had made.

With other model comparisons you do need to make multiple changes before evaluating the impact of those collective changes. One such example would be the future purchase of sale of real estate. You would first want to set up all appropriate assumptions on the yellow-tabbed “Property + Debt” worksheet, before looking at the differences on the “Plans Compared” worksheet.

For many comparisons, the projection with a significantly higher projected dollar amount at some future age(s) would often be the preferred strategy. Choose one or more future ages as your comparison benchmark age(s). However, you need to judge the magnitude of the projected financial advantage to decide whether the advantage warrants the effort in real-life required to achieve that advantage.

Note, however, that the highest projection value is not always the best answer when choosing been strategies. In particular, when you are evaluating a greater level of consumption, then projected future asset values may be lower rather than higher. Financial planning is not simply about running up your personal balance sheet until death. Instead, it is about your finances serving the needs of your family, while providing lifetime financial security.

For example, you might be comparing your current housing situation with an alternative wherein you acquire a larger home. Various projected expense, tax, and investment factors will determine the cost and/or value of owning a larger home. If your family’s projected aggregate future assets increase in relative terms, then you understand better the investment value of owning a larger home.

However, if projected aggregate future assets decline in relative terms, then you have a better understanding of the projected cost of consuming more housing over the years. Just because projected future assets might be lower due to higher housing consumption, you might still prefer this alternative, because it means you expect to be happier with a larger and better home. Or, perhaps, the home is no better, but the public school district is superior and the benefit is a better education for your children, etc.

Update your lifetime financial plan over the years

To refine your baseline financial plan, you simply keep making comparisons between alternative strategies and projections, until you have a refined lifetime financial plan that reflects your family’s financial needs, desires, constraints, and intentions. Then, the real challenge becomes how to alter your real-life financial practices related to income, expenses, debts, taxes, and investing to conform to your financial planning intentions.

After you have used VeriPlan to develop your initial lifetime financial plan, you can update your plan periodically. All data inputs and parameters are user-updatable. VeriPlan can help you to evaluate monitor your progress and help you to evaluate future financial decisions.

Since VeriPlan allows you to change all financial data and all settings and parameters, it has no built-in obsolescence. After the passing of some months or a year, you could update your model with then-current data to check your progress. As new financial decisions arise in the future, you can update your model and evaluate those future financial decisions.

VeriPlan is a comprehensive, automated, and fully integrated lifetime cash flow and asset valuation tool that you can customize in detail to your particular financial situation. Therefore, it can help you to evaluate a very long list of financial strategies. When you compare strategies using different VeriPlan projection scenarios, it is important that you think clearly about the positive and negative financial characteristics of each financial strategy. As you would normally do, list those characteristics on a piece of paper and estimate any associated costs and returns. Then, plug those numbers into an alternative VeriPlan projection scenario and compare the projection results with your current baseline financial plan.