The ORP People

My name is Bob McCluskey and I am the proprietor of this site.  I am a semi-retired college teacher and administrator.  Several years ago I began assessing my retirement plans in earnest.  Of course, my financial circumstances became the basis of all of those considerations.

Along the way I discovered that the Internet offered a number of “retirement income calculators” that could combine information about my current financial circumstances with my assumptions about future and produce predictions about my financial future. I was excited!

My curiosity led me to investigate and try out dozens of these calculators before I chose one upon which to base my own financial projections. I discovered several things:

1. The level of detail varies significantly from one calculator to another.
2. The accuracy of the calculators is not always perfect.
3. Most of the calculators are hosted or sponsored by companies that have a vested interest in how I deal with my money, and the assumptions I make.

These factors made me wish for a financial planner and calculator that was independent of any particular business interests. My higher education career experience kept me looking for a program that had been developed for “academic purposes,”  and had not been co-opted by business interests.  When I discovered the Optimal Retirement Planner I realized that it fulfilled my wish and I started using it for my own planning.

Now that I am retired from higher education, I am pursuing a long-standing interest in web site design and Internet publishing for senior citizens and those who aspire to “seniorship.”  One day I decided to see whether I might be able to incorporate the Optimal Retirement Planner into a web site of my own.  That curiosity resulted in this site.

The Optimal Retirement Planner was developed by my collaborator in this project, James S. Welch, Jr., who is professional computer programmer specializing in the Operations Research tool called Mathematical Programming.  ORP is an application of this tool to the retirement planning process.  James describes the Optimal Retirement Planner as a “decision support system” intended to help with retirement financial planning by computing a set of guidelines illustrating what kind of cash flow the user can expect in retirement.  ORP makes a powerful Operations Reseearch technique available to the retail market.  The most important thing that ORP does is to educate the user in the central issues of retirement planning.

The ORP Program

ORP provides guidance for:

1. Pre retirement: How much to save in which retirement account.
2. Post retirement: The order to drawdown which retirement savings account while minimizing taxes and meeting IRS regulations.  Many ORP users run ORP annually to revise their plans in terms of changes in personal circumstances and the economic environment.

The ORP Process

Here is the simple process for using the tool:

1. You will complete a summary of the facts of your current situation; age, IRA balance, Social Security Benefits, etc.
2. You will then specify your retirement plan choices; age to start social security, the amount of contributions to retirement savings; life expectancy, when to sell your house, etc.
3. If you would like to save these variables for future use you can so indicate on the form.  The next time you navigate to the page it will begin where you left off before.

ORP then produces a report based on the facts and choices you specified.  You can save the report or print it.  The data entry part of the process can be done in just a few minutes.  Since you can save your input information, you can estimate any of the figures in order to get a “quick and dirty” report, then refine them as you have time to obtain more accurate data and choices.  You can also produce and save different scenarios to compare.

ORP runs in two different modes:

1. Simulation Mode: ORP generates a retirement plan for your particular set of choices.
   1. ORP computes the maximum amount of after-tax, inflation adjusted money available for spending in each year of retirement. This is a single number that summarizes your entire retirement picture. Because ORP is an optimizer there are no better solutions – guaranteed.
   2. ORP’s Withdrawal Report shows the cash flow that yields this result.
   3. Other ORP reports show the flow of money into and out of your retirement savings accounts and show the progressive income tax picture throughout retirement.
2. Monte Carlo Risk Assessment Mode: Demonstrates how your particular set of choices will behave in an uncertain economic environment.

ORP’s simulator is fundamentally different from retirement calculators because:

1. The conventional retirement calculator user is required to specify how much to withdraw each year and the calculator computes when the money runs out – age of ruin. The ORP user specifies her (couple’s) life expectancy and ORP computes the amount of money available for annual spending. With ORP the controversy about the 4% rule, users miss estimating retirement spending requirements and the risk of running out of money is rendered irrelevant.
2. ORP computes an optimal retirement savings schedule showing which accounts to save in before retirement to maximize withdrawals during retirement.
3. ORP adjusts the retirement plan with income from post retirement employment.
4. ORP models the progressive Federal and state income tax.
5. ORP models the Federal Minimum Required Distribution requirement.
6. ORP flows money from the IRA to Roth IRA and after-tax accounts to maximize money available for spending.
7. ORP withdraws money from the IRA in parallel with the other accounts rather than the conventional approach of exhausting the after-tax account, IRA and Roth IRA in that order.
8. ORP models the sale of an illiquid asset (home) late in retirement.
9. ORP models Ty Bernicke’s Reality Retirement Planning in which withdrawals are increased during the early retirement years when the retirees are the most active.