This is the first result screen you will see. Did you make your expenses. Are you over? Where are you short?
This, and succeeding screens, share navigation features.
At each level, you can select the cart view or the chart view. Illustrated is the cart view. The cart view is where you find listed the actions you take today and on succeeding yearly anniverseries, as well as asset summaries and anticipated transactions over the course of the remainder of the year.
Get the numbers for each year by changing the year.
The breadcrumb at the top of the page lets you drill down on result details and pop back up.
Tap the dots to select drill-down options. Here we have Investment, Tax, and Social.
The back arrow returns you to the result list. Return to the top level by tapping EXPENSE in the breadcrumb.
Charts
Tap the chart icon to see charts for each level.
Usually, multiple charts are available. Swipe to view each in turn.
Tap inside the chart to change the cart view display year.
Tap the cart view icon to switch back to cart view.
At this level three charts are available.
Where do we get it?
Data is displayed for the duration of your retirement. In this case we see retirement starts in two years.
Bars represent the actual payments from investments or cash income and, if applicable, any shortfall between that income and your required expenses. Cover the shortfalls and you are ready to commence retirement.
What have we got?
Shows total balance over years in your investment accounts. In this case we see assets diminishing until Social Security really kicks in. After many comfortable years, Ralph dies, and the Mrs., on reduced payments, starts to draw down the balance, eventually leaving a million to her heirs.
How do we spend it?
Your expenses are your desired current-dollar, after-tax expenses, plus estimated taxes you need to pay. Note that you never paid more than $11K in taxes.
1 - Investments
Drill down on investments
Your assets are divided between after-tax and retirement accounts. Within each account, assets may be held in “cash,” including inflation-protected bonds, or S&P index instruments.
In this year, we draw cash and S&P. Cash draws are denominated in current dollars. The blue font is used to distinguish actual current dollar figures from modeled estimates of market performance. The S&P withdrawal is denominated in S&P units, or multiples of the S&P average (predicted to be $8951 in 2048). It will vary depending on market performance. Note that, given current valuations, we are depending on the market for only 15% of our 2048 income.
The draw includes $110K of after-tax expenses and an estimated $8724 tax payment.
Figures at the bottom show tax inputs from your before-tax account and traditional IRA(s).
Charts
Four charts are shown. Swipe to view each in turn.
Drill down further in results to see similar charts for each separate account. Charts on this page show totals across all of your accounts.
Assets
Yearly total account balances, with “cash” and S&P assets highlighted. Cash assets are reserved for the early years, when stock market volatility poses the greatest risk and you don’t have social security to anchor your hedge.
Source of draws
Withdrawals from your investment accounts. Cash assets are consumed first, until the higher expected returns of the stock market catch up to and overtake their expected risk.
Required cash percentage
The bars show the percentage of cash assets in each year’s draw. The line shows the required percentage. The bars and line diverge when social security is suffiecient to cover the cash portion of your hedge.
These percentages vary greatly depending on a ten-year moving average of market valuations. The 2023 version of this chart has you all in on stock by 2043.
Tax inputs
These numbers are entered on your tax return. They come from two sources:
After tax account:
Ordinary income from bond interest.
Imputed ordinary income from bond inflation adjustments
Qualified dividends from S&P ETFs. These are reinvested.
Capital gain on S&P draws.
Traditional IRAs
Withdrawals are taxed as ordinary income.
Rollovers to Roth accounts are also treated as ordinary income.
In this case, IRA draws are the biggest contributor.
1.1 - Broker
After-tax account
This is your “broker” or after-tax account.
Required actions are shown for each year. Drill down to see details. The illustration shows the transactions used to set up the portfolio in the first year, in this case, an S&P purchase, and a ladder of TIPS bonds that mature over the first years of the portfolio.
Bond and social security income accrues over the remainder of the year. It is carried over to the next year, where it is typically pulled with the cash draw. (On those occasions where it is not, inflation is charged.)
Charts
Three charts are shown. Swipe to view each in turn.
Account Assets
Yearly total account balances, with “cash” and S&P assets highlighted.
Here we see we took our cash and bought some bonds and S&P. The bonds are gone pretty quick. The stock is held to the last years of retirement, when the IRA is gone and the capital gains can be drawn tax free. $150K goes to heirs.
Account Activity
In this chart, we see an initial set of withdrawals used to support us for the first three years. On the right side of the chart we mostly see social security deposits being deposited, then withdrawn to support the succeeding year.
Tax inputs
These numbers are entered on your tax return.
We can see:
Bond coupons in the first couple years.
S&P dividends over remaining years.
Capital gains as S&P portion is tapped.
1.2 - IRA
IRA balances and transactions
This is the first year of one of your IRA accounts.
Here we see your assets deployed to ensure a steady stream of payments throughout your retirement. Of the starting balance, a big chunk goes to S&P. The remainder goes to build a ladder of TIPS bonds. These will drop a tranche of cash every year sufficient to anchor the cash leg of your hedged payment.
In later years, listed transactions might include:
Cash draws
S&P draws
Cash rollovers to Roth
S&P rollovers to Roth
Charts
Three charts are shown. Swipe to view each in turn.
Account Assets
Yearly total account balances, with cash and S&P assets highlighted. The black line shows your required minimum distribution, or RMD.
Here we see we took our starting balance and bought some bonds and S&P. The bonds are exhausted in a few years. The total balance trends down under pressure from yearly draws and Roth roll-overs. By 2048 most of your assets are in your broker or Roth account.
Taxable Draws
Withdrawals from your IRA account. These numbers are taxed as ordinary income. There are two ways to draw from an IRA:
A regular distribution is included in your expenses for the year.
IRA assets can also be “rolled over” to your Roth account. Pay your taxes on the withdrawal when you roll over, and later withdraw them tax-free from the Roth account. Hedgematic uses this strategy to smooth your tax rates over the entire course of your retirement.
Withdrawals and rollovers from cash and S&P are shown separately.
Untaxed Earnings
These numbers are for information only and not entered on your tax return. Regretably, they all show up as ordinary income when they are eventually drawn or rolled.
We can see:
Bond coupons in the first couple years.
Diminishing S&P dividends as the position shrinks.
Capital gains as S&P portion is rolled.
1.3 - Roth
Roth account balances and transactions
This is one of your Roth accounts.
Shown are 2046 transactions. In this case, we take a cash and S&P rollovers from the IRA and draw cash. Later in the year a bond matures. This deposit will be directed to next year’s payout.
Charts
Three charts are shown. Swipe to view each in turn.
Account Assets
Yearly total account balances, with “cash” and S&P assets highlighted.
In this case, the bulk of the estate migrates to the Roth account as the IRA is drained.
Only after Ralph’s death and the attendant drop in Social Security payments does the balance stop climbing. Your heirs get the remaining $800K tax-free.
Account Activity
Withdrawals are on top. Roll-ins are on the bottom.
Withdrawals and roll-ins from “cash” and S&P accounts are shown separately.
Untaxed Earnings
These numbers are shown solely for amusement purposes.
2 - Social Security
Review Social Security income
Total Social Security payments include:
Your Social Security benefit.
Your spouse’s Social Security benefit.
Spouse benefit, if available.
Survivor benefit, if available.
Social Security is computed from personal data in your profile.
Charts
One chart is shown.
Illustrated is a two-earner couple. Ralph is male and two years older. He maxes out on social security. Margaret is female and hence lives two years longer than Ralph. Her work history was such that she opts for the spousal benefit. Ralph retires at age 64 and commences social security three years later at 67, his full retirement age. Margaret waits two more years before taking the spousal benefit at 67, her FRA. On Ralph’s death, she gets four years of survivor benefits.
3 - Taxes
Yearly constant dollar income tax returns
Hedgematic computes a tax return for each year of your retirement and includes the so-estimated taxes in your draw, over and above your required expenses. Displayed here is an estimated tax return.
Charts
One chart is displayed.
Tax Computation
Bars represent entries on your 1040.
Ordinary Income includes interest on bonds and withdrawals from your IRA.
Taxable SS is that portion of Social Security subject to income taxes.
Cap Gain includes reinvested (Qualified) S&P Dividends and gains on S&P sales.
The line at the bottom displays your total tax liability.
Note: Check out the smooth descent of the tax inputs in the middle of the chart. What is happening here is that Hedgematic is holding taxable income constant at the top of the 12% bracket. Taxable social security is not indexed for inflation. As it bites more, less room remains for IRA draws, which are consequently steadily decreased. The IRA is being systematically rolled to Roth without ever leaving the 12% bracket. By 2049, the IRA is zeroed out, the taxable social security plummets, and taxes go to zero.
