Many so-called “planning tools” are simply aggregators. They pull together your account balances each time you sign in and show you your current balance year-to-date. That’s handy, especially when you have accounts spread around at different brokerage companies where you can’t see them all at once.
But that’s not financial planning. It’s simply telling you something you already more or less know (or could create in a spreadsheet) and it’s a convenience feature, not a life-cycle planning feature.
So what is the fundamental difference between conventional planning and MaxiFi Planning (what we call economic planning)?
Conventional planning builds its model around user-entered spending amounts. The user of conventional planning software is sooner or later asked some form of the following question: “How much do you need to live on in retirement?” If that question sounds familiar, you are using conventional planning software. Sometimes users know how much they need, sometimes they use a rule of thumb like 80% of pre-retirement income, sometimes they just guess. At any rate, the variable comes from outside the model itself and thus becomes a premise of the model not an outcome of the model. MaxiFi’s economic planning works a different way: it takes your inputs and discovers your allowable annual spending level. Instead of asking you to tell the program how much you need to live on, MaxiFi discovers and reveals to you how much is available. This annual spending allowance is new information. It’s not something you could ever discover on your own without complex programming. Every item in MaxiFi's planning model impacts every other item, and they all work together to reveal in MaxiFi the household’s annual spending level.
Why does this difference matter?
- A calculated spending level becomes a reliable benchmark to use when comparing models
- A calculated spending level is new information, not simply repackaging (or creating a chart of) known information
- A calculated spending level is a mathematical outcome, a fact about a household’s economy, not a wish, goal, hunch, or rule of thumb.
- A calculated spending level is including future receipts like Social Security, pensions, taxes, Medicare B, retirement withdraws, mortgages, and on and on. When one item, even the most trivial item changes, the calculated spending level is refreshed.
- A calculated spending level focuses on smooth, sustainable spending, not savings targets.
- A calculated spending level provides a practical, meaningful answer to financial planning question (compared to the abstraction of a simple Monte Carlo conclusion). MaxiFI Premium and Professional has its own robust Monte Carlo risk simulation tool.
MaxiFi does all this with a level of detail and precision not typically found in other planning software. Maxifi
- Calculates state and federal taxes based on income for each year
- Calculates actual Social Security benefits and finds optimal benefit collection strategies
- Does not build its model around user-specified premise such as how much one needs to live on in retirement
- Dynamically incorporates every future receipt and expense in a way that displays the meaningful difference it makes in annual spending starting in the current year rather than a Monte Carlo abstraction like “87% chance of success.”
- MaxiFi’s sophisticated Monte Carlo allows you to run a risk analysis on your model showing the upside potential and downside risk to your annual spending level, not simply to an isolated pool of retirement assets.
MaxiFi gives you all this without any compromise. Our company doesn’t sell your data, we don’t manage your assets and make money from fees. We’re simply in the business of writing software to help people make smarter financial decisions.