Lifetime Planner: Property Tax input within Home and Asset

gtamm

Was interested if anyone knows why when you input into Lifetime Planner the property tax you pay (within the asset, not as Living Expenses) it appears it discounts yearly the $ amount you have in your Income and Expense summary report. The only other items this happens to are loan payments (that are fixed). Since Property Tax increase each year, is it due to the value of the home not moving up?

Boatnmaniac

(Made some corrections and added some more details....in italics.)

@gtamm - If you entered a general inflation rate percentage and a 0% house value annual change rate, your assumption is correct.  If you did this the inflation adjusted annual value of your house will decrease by the same percentage of the general inflation rate you entered.  When you enter a property tax figure for that house asset, Quicken calculates the percentage tax rate from that and will use that same tax rate in calculating future years property taxes.  So if the inflation adjusted house value decreases, then the projected property tax dollars will also decrease by that same percentage.

Unfortunately, TP LP does not give us the option to enter an annual percentage change to the calculated property tax rate so that calculated tax rate remains constant for all years even though in reality the tax rate does change from year-to-year. 

What I've done in my TP LP regarding this: 

• Update my house value asset 2-3 times per year.  I simply use the Zillow estimate for this.
• In LP, entered a 3% annual general inflation rate.  (Some feel that 2.5% is better but I prefer to err on the high side as it will give a more conservative plan projection.)
  
• In TP LP, I enter (and update each year) the historical 10-yr annual housing value price change for my area.  I have tracked my house values going back further than that so it is an easy calculation:  (2020 house value - 2011 house value) / 2011 house value / 10 yrs.  If you don't have that information you can get a reasonable approximation of how housing values in your area have changed over time by Googling it or by looking at data from your property tax authority and then use the same calculation.  
• In TP LP, I enter the actual property tax dollars paid for the last year and then update it annually.
  

It's not perfect but TP LP is not intended to give a perfect picture of future values.  It's simply a planning tool based upon various assumptions that needs to be periodically updated as assumptions and/or actual financials change.  If done properly it will give you a good ballpark estimate based upon current assumptions.

Another way of getting a picture of future property taxes liability is to not enter anything in the property tax field at all and instead set up a new Asset Expense item for the house (call it "Property Tax") for a specific dollar amount with a percentage annual change entered for it.  Since it is not tied to the value of the house, this Asset Expense would show projected tax dollars for each year that are not linked to the value of the house asset.   But this method has a major drawback if you live in an area where housing values are increasing faster than the rate of inflation because this method will not take that into account when projecting your property tax liabilities.

Boatnmaniac

(Made some corrections and added some more details....in italics.)

@gtamm - If you entered a general inflation rate percentage and a 0% house value annual change rate, your assumption is correct.  If you did this the inflation adjusted annual value of your house will decrease by the same percentage of the general inflation rate you entered.  When you enter a property tax figure for that house asset, Quicken calculates the percentage tax rate from that and will use that same tax rate in calculating future years property taxes.  So if the inflation adjusted house value decreases, then the projected property tax dollars will also decrease by that same percentage.

Unfortunately, TP LP does not give us the option to enter an annual percentage change to the calculated property tax rate so that calculated tax rate remains constant for all years even though in reality the tax rate does change from year-to-year. 

What I've done in my TP LP regarding this: 

• Update my house value asset 2-3 times per year.  I simply use the Zillow estimate for this.
• In LP, entered a 3% annual general inflation rate.  (Some feel that 2.5% is better but I prefer to err on the high side as it will give a more conservative plan projection.)
  
• In TP LP, I enter (and update each year) the historical 10-yr annual housing value price change for my area.  I have tracked my house values going back further than that so it is an easy calculation:  (2020 house value - 2011 house value) / 2011 house value / 10 yrs.  If you don't have that information you can get a reasonable approximation of how housing values in your area have changed over time by Googling it or by looking at data from your property tax authority and then use the same calculation.  
• In TP LP, I enter the actual property tax dollars paid for the last year and then update it annually.
  

It's not perfect but TP LP is not intended to give a perfect picture of future values.  It's simply a planning tool based upon various assumptions that needs to be periodically updated as assumptions and/or actual financials change.  If done properly it will give you a good ballpark estimate based upon current assumptions.

Another way of getting a picture of future property taxes liability is to not enter anything in the property tax field at all and instead set up a new Asset Expense item for the house (call it "Property Tax") for a specific dollar amount with a percentage annual change entered for it.  Since it is not tied to the value of the house, this Asset Expense would show projected tax dollars for each year that are not linked to the value of the house asset.   But this method has a major drawback if you live in an area where housing values are increasing faster than the rate of inflation because this method will not take that into account when projecting your property tax liabilities.

Boatnmaniac

@gtamm - First, I made some edits to my original post (in italics) and wanted to bring that to your attention.

Second, one other thing I do in LP is to enter an annual misc expense Adjustment that continues until I die.  There will always be something unplanned that comes up (car repair, house repair, appliance replacement, major medical expense, etc.) so I put in $10,000 annually for this.  It can also help to offset in the plan unknown increases in property taxes.  It will make the LP projection more conservative but also perhaps more realistic because these types of unplanned expenses do come up so I'd rather plan for that and not be surprised later.

gtamm

thanks! I have found the LP very useful as a framework.

Boatnmaniac

@gtamm - You are very welcome.  I agree, LP is a great and very useful long-term planning tool.  I've used it extensively for many years and it really helped me to understand when and how I could retire comfortably.  There are many other similar online tools available but most of them are not as detailed in the assumptions, data and life event changes that can be entered and tracked which in my mind makes them less reliable and useful. For me, this has been the 3rd most valuable function of Quicken right behind Spending and Investments tracking.

Scooterlam

Boatnmaniac said:

...

Another way of getting a picture of future property taxes liability is to not enter anything in the property tax field at all and instead set up a new Asset Expense item for the house (call it "Property Tax") for a specific dollar amount with a percentage annual change entered for it.  Since it is not tied to the value of the house, this Asset Expense would show projected tax dollars for each year that are not linked to the value of the house asset.   But this method has a major drawback if you live in an area where housing values are increasing faster than the rate of inflation because this method will not take that into account when projecting your property tax liabilities.

If I understand you correctly, the major drawback you described can be addressed if you set the Asset Expense inflation rate (eg. Property Taxes) equal to the Asset Account return.  Doing so, you effectively tie the growth of the property tax expense to the asset value.

I tested this both ways and the portfolio ending balances were nearly the same.  I can't explain why they are not exactly the same however.  But, I'm not not concerned over a 0.023% difference.  A good exercise though.

I've been reconfiguring my LTP expenses recently and have put both the property tax and property insurance costs in the home asset account under asset expenses as you described.    I've been doing this to keep consistent how my other planning tools are configured (RightCapital and OnTrajectory).

Scooterlam

Boatnmaniac said:

@gtamm - You are very welcome.  I agree, LP is a great and very useful long-term planning tool.  I've used it extensively for many years and it really helped me to understand when and how I could retire comfortably.  There are many other similar online tools available but most of them are not as detailed in the assumptions, data and life event changes that can be entered and tracked which in my mind makes them less reliable and useful. For me, this has been the 3rd most valuable function of Quicken right behind Spending and Investments tracking.

Couldn't agree more @Boatnmaniac et al.!   Please have a look here and vote, if you haven't already done so:  https://community.quicken.com/discussion/7713110/lifetime-planner-bug-and-idea-list-make-yourself-heard#latest

The more I use LTP, the deeper I dig, the more I appreciate the prior effort by the product team.  I wish there is more focus on fixing bugs and improvements, not to mention keeping up with (being in front of...) tax changes (eg. Secure Act).



.

Boatnmaniac

Scooterlam said:

Boatnmaniac said:

...

Another way of getting a picture of future property taxes liability is to not enter anything in the property tax field at all and instead set up a new Asset Expense item for the house (call it "Property Tax") for a specific dollar amount with a percentage annual change entered for it.  Since it is not tied to the value of the house, this Asset Expense would show projected tax dollars for each year that are not linked to the value of the house asset.   But this method has a major drawback if you live in an area where housing values are increasing faster than the rate of inflation because this method will not take that into account when projecting your property tax liabilities.

If I understand you correctly, the major drawback you described can be addressed if you set the Asset Expense inflation rate (eg. Property Taxes) equal to the Asset Account return.  Doing so, you effectively tie the growth of the property tax expense to the asset value.

I tested this both ways and the portfolio ending balances were nearly the same.  I can't explain why they are not exactly the same however.  But, I'm not not concerned over a 0.023% difference.  A good exercise though.

I've been reconfiguring my LTP expenses recently and have put both the property tax and property insurance costs in the home asset account under asset expenses as you described.    I've been doing this to keep consistent how my other planning tools are configured (RightCapital and OnTrajectory).

(Edited:  Edits in italics.)

Yes, that is what I was trying to say but I believe the Asset Expenses are not tied to the annual property value change so if you want to account for annual increases/decreases with these you need to enter an annual percentage change for them individually.  The property tax entered above the Asset Expenses is linked to the property value changes so it will go up/down based upon how the house value changes. 

No matter where you enter the property tax amount (either in the property tax field or as a associated asset expense) it will not be perfect but at least it’s accounted for.  The relatively small changes that occur each year with property taxes are mostly noise in the short-term.  Simply update the plan each year to reflect the real cost to keep the long-term projection reasonably accurate.  And be sure to build that annual special expense or living expense adjustment bucket into the plan so you are covered for the “what-ifs” that life hits us with.

We all need to keep in mind that LP is a long-term planning tool where the main benefit is providing a long-term high level projection of the effects of compounding on assets, income and expenses (both actual and planned as well as accounting for major life change events).  It should not be viewed as an annual budgetary tool other than to identify where we might need to change annual budget plans if the LP projection fails to meet the lifetime objective.

Boatnmaniac

Scooterlam said:

Boatnmaniac said:

@gtamm - You are very welcome.  I agree, LP is a great and very useful long-term planning tool.  I've used it extensively for many years and it really helped me to understand when and how I could retire comfortably.  There are many other similar online tools available but most of them are not as detailed in the assumptions, data and life event changes that can be entered and tracked which in my mind makes them less reliable and useful. For me, this has been the 3rd most valuable function of Quicken right behind Spending and Investments tracking.

Couldn't agree more @Boatnmaniac et al.!   Please have a look here and vote, if you haven't already done so:  https://community.quicken.com/discussion/7713110/lifetime-planner-bug-and-idea-list-make-yourself-heard#latest

The more I use LTP, the deeper I dig, the more I appreciate the prior effort by the product team.  I wish there is more focus on fixing bugs and improvements, not to mention keeping up with (being in front of...) tax changes (eg. Secure Act).

I voted for the idea.  However, it does seem that Quicken has been implementing some improvements over the years but it’s been done quietly in the background instead of being listed in the changes when Quicken releases new revisions. 

One of the issues that used to bother me is that LP would not properly calculate my wife’s SS based upon her spousal benefit (50% of mine).  I haven’t seen that as a problem for a couple of years, now. 

Another recent improvement has to do with planned assets linked loans.  Previously, if I were to make a date change to the planned purchase of a car the linked loan would not automatically update to reflect that date change so I’d also have to remember to manually update that linked loan, too.  It does that now automatically although I first had to delete the old entry for the linked loan and then create a new one.  Once that new linked loan was set up it  updates automatically when the car purchase date change is made. 

One issue that really bugs me though is that if I have a planned asset, expense, income or event and I forget to updated it to a new date, once that a planned date has been passed I cannot simply edit that expired plan and put in a new date.  Instead I have to create a new plan for it.

Another thing that I need to always keep in mind is that LP often calculates things correctly but the logic for that is not always intuitive so it appears that it made a mistake.  Usually, after digging into it more I find that all is good or that I’d made a mistake in how I initially entered the data.  A good example of this has to do with inflation.  If a general inflation rate is entered and you don’t also enter annual percentage or dollar value changes everywhere else that it can be entered the plan loses credibility.  It would be better to not enter inflation percentages and annual dollar value changes anywhere than to only do it partially.

mshiggins

I know what LTP stands for - Lifetime Planner. What is LP?

Boatnmaniac

mshiggins said:

I know what LTP stands for - Lifetime Planner. What is LP?

I've always referred to Lifetime Planner as LP since there are only 2 words in it.  LTP is a good phonics acronym for it.  Is LTP more commonly used here for this tool?