MaxiFi is personal financial planning software that allows you to achieve financial freedom and peace of mind during retirement or any other stage of life. Developed by renowned professor of economics and best-selling author Laurence Kotlikoff, MaxiFi is built on a foundation of solid economic principles unlike “conventional” financial planning tools like New Retirement. This article compares MaxiFi with New Retirement to help you choose the right tool for your family.
|Economics-Based Financial Planning||Outdated conventional planning|
|Lifetime planning that handles all financial decisions||Retirement planning|
|Internally consistent planning||Inconsistent planning|
|Handles cashflow constraints||Ignores cashflow constraints|
|Maximizes Social Security, minimizes lifetime taxes||Tax calculations ignore critical spending impacts|
|Life insurance calcs that protect survivors' living standards||Life insurance based on spending guesses|
|Living Standard Monte Carlo® dynamically adjusts spending||Conventional Monte Carlo with rigid, guessed spending|
Economics-Based Financial Planning
New Retirement uses a “conventional” financial planning approach where you guesstimate your spending far into the future and it finds the probability you’ll run out of money before you die. It also has a deterministic mode that relies on the same spending guesstimates.
MaxiFi brings the insights and principles of economics to financial planning and is the only tool sophisticated and powerful enough to perform lifetime budgeting. Learn more about conventional vs. economics-based financial planning.
Lifetime planning that handles all financial decisions
Your life starts now, not the day you retire. MaxiFi’s deterministic planning can answer any question, at any stage of life, that impacts your family’s future financial well-being. What if: I choose a different career? Pay off my student loans early? Switch jobs? Retire early? Downsize? Take Social Security later? Do a Roth conversion? Relocate to Texas? The list goes on.
MaxiFi’s deterministic planning is based on conservative assumptions about future returns. Each financial decision is assessed in terms of your bottom line – the impact on your family’s sustainable living standard. These answers are delivered in concrete dollar terms – the impact on affordable additional annual spending. They aren’t presented as changes in the probability of staying solvent.
Internally consistent planning
Unlike New Retirement’s deterministic planning, when you change assumptions, like contributing more to an IRA, MaxiFi automatically recalculates your affordable discretionary spending path – the one that smooths your family’s consumption. It does so extremely quickly – usually within a second. During that second, MaxiFi is not just raising or lowering your future annual path of discretionary spending. It’s recalculating each year’s federal and state taxes, Social Security benefits, and Medicare Part B IRMAA premiums. It’s also recalculating your life insurance needs.
Hence, every time you run a MaxiFi profile, you know all its results – its discretionary spending, taxes, benefits, and insurance premiums – are internally consistent. In contrast, New Retirement’s analyses are internally inconsistent. They are made based on your original spending target, not on what’s now affordable. Yes, one can manually adjust one’s target. But doing so in analyzing a single financial decision is a guessing game that can take hours. It can take a lifetime if the household faces cashflow constraints, which is the case for most households.
Handles cashflow constraints
A cashflow constraint is when desired spending exceeds the cash you can access without going into debt. Roughly two thirds of U.S. households face cash constraints at some point in their financial lives. Given the recent extension of required minimum distributions from retirement accounts to age 75, this number is likely to grow even higher. Therefore, getting cash flow right is paramount, and it’s critical to understand how each program handles this problem.
New Retirement’s planning approach (like that of all other conventional planning software) requires endless trial and error to avoid a spending path that requires borrowing to spend. MaxiFi’s advanced algorithms handle cashflow contraints when recalculating a full lifetime financial plan. Specifically, MaxiFi reduces your spending in years to accommodate your cashflow constraints. But it does so starting as early as possible so that your household’s living standard over time is as stable as possible.
Maximizes Social Security, minimizes lifetime taxes
Unlike New Retirement, MaxiFi does robo-optimization. Click on its Maximization button and it will maximize whatever profile you’ve constructed. Maximization references considering all Social Security collection strategies and retirement-account withdraw start dates to find the combination that delivers your household’s highest lifetime spending. You can also further optimize your plan on a manual basis. Each profile you set up can be compared on a side-to-side basis with any other.
Getting Social Security right can, in particular, deliver tens to hundreds of thousands of dollars in additional lifetime discretionary spending. MaxiFi’s Social Security benefit code is second to none in detail and accuracy. Indeed, it goes far beyond the tools the Social Security Administration provides on its website.
Conventional tools like New Retirement can explore Social Security optimization, Roth Conversions, and optimal timing of retirement account withdrawals. But, to repeat, MaxiFi does so ensuring your spending, taxes, and insurance premiums remain internally consistent. For example, if you model retiring early, MaxiFi automatically lowers your spending, federal and state taxes, and, as appropriate, Social Security benefits, benefit-taxation, and Medicare Part B (IRMAA) premiums.
Life insurance calcs that protect survivors' living standards
Setting arbitrary spending targets, as New Retirement and other conventional tools require, means being advised to buy enough life insurance to cover these supposed spending “needs.” MaxiFi’s life insurance suggestions are based on actual spending needs – what’s needed to preserve your household’s sustainable living standard for survivors.
Life insurance isn’t, of course, free. MaxiFi adjusts its spending suggestions in light of these costs, which, in turn, impacts required annual life insurance amounts. Here, again, internally consistent calculations are critical. So too is MaxiFi Premium’s Contingent Planning – accounting for changes in housing, earnings, childcare, etc., when a household head or spouse/partner passes.
Living Standard Monte Carlo® dynamically adjusts spending
New Retirement’s Monte Carlo simulations, as with other conventional tools, assume you will spend at your desired retirement target no matter how poorly or well your assets perform. As discussed above, a “safe” plan is one with an 80 percent or higher probability of avoiding going broke. But who wants to have even a 1 percent chance of losing every penny except Social Security, be that at age 95 or age 65.
MaxiFi’s Full Risk Investing simulates what people actually do or should do – adjust their spending in light of how well their assets perform. MaxiFi’s Full Risk Investing shows you the range of living standard trajectories you can expect based on how aggressively you invest and spend through time. Full Risk Investing not only shows you your upside and downside living standard risk. It compares upside and downside trajectories for riskier and safer strategies. These strategies involve two decisions – how aggressively to invest through time, but also how aggressively to spend through time. Like aggressive investing, aggressive spending can produce substantial downside living standard risk.
MaxiFi also includes a unique approach to Monte Carlo, called Upside Investing. It’s designed for investors who want to set a floor under their living standard, but still invest in the market. MaxiFi is the world’s only software that helps you establish, not an income floor, but a living standard floor. And it shows you the trade-off between a higher floor and a lower upside (or vice versa). Most households want to invest in the market. But they also want to sleep at night knowing their basic living standard is secure. MaxiFi’s Upside Investing eliminates downside living standard investment risk while providing you with a potentially substantial future living standard upside.