The SimFinance application is mostly done.
As is always the case, the software was more complex than I thought it would be. The main complications were due to the fact that my partner and I aren’t married. So the application had to try to optimize who paid the bills to manage the size of each of our accounts and how much taxes we each had to pay. The other big complication was trying to manage our traditional and Roth IRAs to minimize taxes each year.
There are some big things yet to do:
- Come up with a model for stock dividends. Right now, dividends are simply included in the return of the S&P. However, that is not really accurate, as the yield of dividends lags behind changes in stock prices. Also, taxes are due on dividends the year they are paid instead of the year the stock is sold. Those two differences may end up balancing each other out in the overall results.
- Investment strategy comparison. Would dividing our money between bonds, i-bonds, and stocks be better overall than having everything in stocks? Does the reduction in volatility pay off? Or is it better to just accept the volatility and maximize returns?
- More optimization post 60. The order of IRA withdraws should change after 60. Need to model medicare.
The model is giving us an 85% chance of success right now. I don’t really think that the things that are left to do will change this number significantly. It is surprising how much money we have to have to get a 95% chance of success and how much variation there is in the possible outcomes.
It is possible that treating the S&P 500 as a random distribution is wrong. While the historic data looks random, there probably are some underlying “fundamentals” that keep the stock prices within a range. I am not sure how to add that to the model besides trying to put an overall cap on the market returns.