RRIFmetic allows you to compare projections based on various savings and investment strategies

By James Cripps | April 2006

One of the most important reports a financial planner can make for a client is a projection of retirement income.

Over the years, I have tried various methods of doing this, starting with writing my own menu-driven Lotus spreadsheet, graduating to using AIM Funds Management Ltd. ’s InSync program and Intuit Inc.’s QuickWealth Planner before eventually trying FPS2000, NaviPlan and Visionworks. I discarded all these for various reasons: the first was too difficult to maintain; the next two lacked sophistication in dealing with income taxes; and the last three were extremely time-consuming to use and produced results that were dependent on obscure, difficult-to-track assumptions.

The hands-down winner in efficiently producing realistic retirement projections is a program called RRIFmetic, offered by Vancouver-based Fimetrics Systems Ltd. It is fast; the interface makes it easy to remain conscious of the state of various key assumptions of the projections; it produces projections that include government entitlement programs; it is tax-accurate; and it has extremely versatile modelling capabilities that allow the user to compare the effects of alternative courses of investment or spending on sustainable retirement income or estate value.

Clients contemplating retiring usually have questions. “How much do I need to save until age 55 to have a monthly income of $X for the rest of my life?” “Should I first deplete my RRSP or my non-registered assets to maximize my income?” “What kind of retirement income can I sustain if I retire now?”

Clients want to know if a large inheritance, insurance policy or asset sale will affect their prospective retirement income or what effect the rate-of-return assumption, retirement date and life expectancy will have on their retirement income. They want to know whether to take a severance package or buy back pensionable service after a maternity leave or keep the RRSP room; and whether to make an annual RRSP contribution or pay off the mortgage as quickly as possible.

RRIFmetic can provide answers to all these questions and many more for virtually any individual’s or couple’s circumstances. Moreover, it can do this in a way that reflects the impact of the current income tax regime on couples and individuals. In addition to providing this massive analytical horsepower at an extremely competitive price, it provides flexible input options and output design, excellent documentation of underlying assumptions, and is very, very fast.

This last point cannot be emphasized enough because it means a skilled user of the program can efficiently compare — in real time with a client, if appropriate — the consequences of various savings and investment strategies.

In addition to all these attributes, RRIFmetic does some unusual things very well. For instance, it will determine a sustainable, real, after-tax income and necessary savings rate, based upon the level of existing assets and assumptions about inflation, rates of return, variability of return, retirement date, longevity, timing and nature of taxation, and estate goals.

It can do all these things because, in the words of the program’s author: “The essence of the program is the ‘reverse tax engine’. This allows a level of tax accuracy not usually found in most programs, and also computes in a ‘goal-based’ direction, starting with [desired] after-tax income and working backwards. And it does so without resorting to approximating [deficit/surplus/shortfall] math.”

Not surprising, given its power and economy, RRIFmetic is not as straightforward to learn as the average Windows program. This is partly because the program was created before standard Windows menu conventions were prevalent and partly because of the large number of assumptions underlying the calculations.

On the other hand, the visual nature of the interface is very efficient, making it easy for infrequent users to reorient themselves to the program.

RRIFmetic also has good tutorials to help the learning process, and Fimetrics provides excellent telephone and e-mail support. IE

James Cripps, CFA, RFP, CFP, is a senior financial planner with Vancouver Financial Planning Consultants Inc. in Vancouver.