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Recursion- the math behind RRIFmetic (pdf)

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FAQ Index

What is 'the reverse tax engine'?
What is 'goal-based' planning? Artificial Intelligence? Optimization?
Is RRIFmetic just for retirement planning?
How is tax calculated?
Why doesn't the tax agree with my tax program?
Why does a RRIFmetic-produced plan take such a short time to create?
Why is RRIFmetic only $379/$99 to purchase?
How extensive can a RRIFmetic plan get?
What is the difference between the Pro and Personal use versions?



What is 'the reverse tax engine'? 'recursion'?

While income tax is a relatively simple calculation (after all, some of us still do our T1 by hand); for the purpose of financial planning, we need to compute tax from the bottom up. .... "I need $30,000 after tax, to live on. How much should I draw from (or put to) savings in order to exactly deliver $30K?" Think about it. Fire up your Cantax and try to come up with that exact after-tax amount. You will have to repetitively try various RRSP withdrawals (or contributions), until you even get close to the 30K. Of course, if there is other income involved (you may still have a small salary, rental or dividend income, CPP, OAS, you may have capital outside your RRSP, or you may have loan or insurance payments to make).... these complicate the process even more. Finding a withdrawal or deposit level which does the above, incorporates these other cash flows and exactly runs your capital out (annuitizes it) at age 90/95/100 is even more complex.

The 2 to 3 second pause while RRIFmetic computes is the reverse tax engine doing its thing. During that pause, the program is performing that same repetitive (recursive) math, the equivalent of Quicktax crunching up to 20000 individual tax returns!

....Spreadsheeters/CCH users: don't even think about it! (RRIFmetic math concepts)

Unlike its other tax-based competitors, you won't find the terms 'deficiency', 'shortfall' or 'surplus' anywhere in a RRIFmetic report/graph. RRIFmetic solves the math exactly (i.e. using recursion), without any approximation. This is the unique nature of this calculation.

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What is 'goal-based' planning? Artificial Intelligence? Optimization?

See the above FAQ.

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Is RRIFmetic just for retirement planning?

RRIFmetic can be used for an infant with a trust fund, a 16 year old NHL prospect, capital needs for a 40 year old working couple, demonstrating how the commuted value of a pension will effect a 45 year old, or determining support pmts for a divorce collaboration/mediation. It doesn't follow the traditional concept of 'retirement'.... there is no "now I am working, now I am retired" time sequence, RRIFmetic takes a more general approach. Simply put, there are periods of time when you are receiving more money than you can spend and times when you are short. In the first case, the program saves the excess, and in the latter case it draws savings down. So, if you are working and plan to take a 2 year sabbatical, or you are retired and expect to receive a large inheritance, the program automatically switches between the 'investing' and the 'withdrawing' modes.

There is no parameter called 'retirement age' in the program.

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How is tax calculated?

The income tax calculation is more accurate than the T1 (it indexes the tax brackets). It is derived, in part, from the CRA's twice yearly withholding tax publication (T4127E). This contains most of the math for the fed/prov tax algorithm. This is not a tax table, it is the full, detailed tax calculation. Other rules, such as the charitable donation calc, dividend tax credit, OAS clawback, age 65 exemption, etc come from the T1 itself.

Of primary importance is the fact that registered, nonregistered and equity capital interact with income tax over time in vastly different ways. Most 'tax-accurate' programs fail this test! This mechanism must be a part of the goal-based model.

Programs which tout the fact they 'include the T1 calculation', are misleading you... it is the ability to compute the T1 in reverse (see top FAQ) which defines the 'goal-based' planning methodology.

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Why doesn't the tax agree with my tax program?

Two reasons. Firstly, your tax program uses last year's rates, RRIFmetic uses next year's. Secondly, if you are checking tax calculated several years out in time, remember, RRIFmetic's tax module indexes both the fed and provincial tax brackets. Your Cantax won't do this. Also, EI and CPP withholdings are included in the tax calc. Remember to take this into account when checking.

Checking RRIFmetic against some of the high end competitors will, in all likelyhood, result in the same discrepencies. RRIFmetic's tax module can now be viewed in its entirety as computer source code. The taxation calculation is no longer a mysterious black box. In all likelyhood, the discrepency problem is not with RRIFmetic.

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Why does a RRIFmetic-produced plan take such a short time to create?

Very simply, all the data needed to source the plan is immediately quantifiable by the client from his own knowledge base.... salary, retirement age, existing capital, lifestyle (living costs), outstanding loans, an expected inheritance.... these are simple numbers to come up with. Once input, the program's "reverse tax/goal-based" engine (see first FAQ) takes over and 3 seconds later...., the plan is done. No more tweaking or redefining the data to try and eliminate or reduce shortfalls/deficits! The plan solves exactly (optimizes automatically) the first time. Also, making simple 'what if' changes are a matter of seconds to invoke.

A program which takes any longer than 10 seconds to solve just won't get used for creative, 'what-if' (in front of a client or an audience) planning!

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Why is RRIFmetic only $379/$99 to purchase?

OK, try this on.....

RRIFmetic Pro costs $379 (one time cost) and $99 per year for the yearly licence fee. (Most similar programs charge the full cost every year.) Why is this?

Phone or email us. We will answer right away, or we will get back in a few minutes. This is another way of saying "we don't have a customer support problem". The program is simple to use and easy to interpret, and it doesn't invoke client questions such as ..."how did this number come about?" or "my accountant says this is wrong, what's happening?" The reports are concise, readable, and tax-accurate; consequently we don't have to pay for expensive customer support staff to explain errors and discrepencies.

No corrupted databases, or consistency problems such as.... "I just ran 2 identical plans and I got 2 different results! Why?

See for yourself with this simple test.

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How extensive can a RRIFmetic plan get?

Loans/leveraging, capital needs, term insurance (fixed/variable premium), LTC, UL, disability insurance, annuities, divorce asset splitting/support pmt negotiating, TFSAs, ROCs, charitable donations, RESP strategies, LIFs/LRIFs, a future capital gain (inheritance, sale of real estate or business), rental income, spousal RRSPs, income splitting, dividend income, estate planning, reverse mortgages, using a UL policy to collateralize a future investment loan, DC/DB pensions, pension/payout alternatives, 'how much capital do I need?', 'can I afford early retirement?', 'should I take early CPP?', 'should I continue to shelter my RSP after retirement?', 'RRSP vs TFSA?', 'will I run out of money too soon?', monte carlo studies....

One program.

All the above financial undertakings (including MC) are part of a single integrated cash flow calculation. Forget about separate program choices ...Naviplan (2) - CCH/FPS (4), programs which average tax over time (Profile/Insync/Wealth Creator), or a collection of disconnected spreadsheet modules (MoneyMinder, InfoMac.....) RRIFmetic is a fully inclusive, tax accurate, goal-based financial planning model which can be used for all your clients and prospects regardless of their net worth. Furthermore, all cash flows interact together.... in a two second compute. Here are some typical questions the program addresses....

-should I continue to shelter/acquire RRSP capital? draw down my RRSP early?
-should I opt for the TFSA as well as, or instead of, the RRSP?
-should I pay down my mortgage early, borrow to invest? leverage?
-how does the downsize/sale of my home in 10 years effect my lifestyle now?
-I plan to sell my business/farm/rental property. How do those future cash flows (txbl/nontxbl/divids) effect (integrate with) my plan?
-my employer is offering a choice to commute my pension . Should I take the commuted value or stick with the pension?
-how do we decide on an equitable division of assets/support if we divorce?
-how does a reverse mortgage effect my estate value over time, when all cash flows are considered?
-how will my spouse fare if I should die prematurely?
-how does the RESP work?
-what advantage is Universal Life to my estate/tax plan?
-how will buying a new car every three years effect my cash flow?
-how can I ensure my estate will net exactly $200K, $500K? $0K ($0K means to just 'die broke')?
-how does borrowing from my RRSP (and repaying) for a home purchase effect my overall retirement plan?
-what about Life, LTC or Disability Insurance? capital needs?
-what is the real (after tax) effect of a major charitable gift?
-can I afford to retire early? take partial retirement?


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What is the difference between the Pro and Personal use versions?

First of all, there is only one version of RRIFmetic. Unlike other major vendors who confuse you with multiple versions, RRIFmetic comes in one flavour only. These vendors have had to dumb down their programs by offering 'average tax' versions. Not so with RRIFmetic. This is a testament to it's ease of use.

RRIFmetic and RRIFmetic Pro are one in the same program.... apart from the price ($99). The personal use version allows only 5 files to be kept; the pro version allows unlimited files.

(a personal user can upgrade to full pro status at any time for the price difference..... on line)

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Fimetrics Systems Ltd.           sales-support@fimetrics.com           Tel: 1-800-663-4088