Today I’ve got something a little different for you: a review of a new financial planning software developed specifically for the FIRE community.
ProjectionLab was promoted on several prominent FI blogs and podcasts over the last few weeks – and for a good reason: the software is beautiful and flexible. A lot of FIRE enthusiasts have been waiting for a tool like this (myself included!).
I’ve received several emails and messages from readers who asked me about the software and whether I think it would work for a) various Semi-FI scenarios and strategies and b) in an Australian context.
One of the members of our Semi-FI Facebook group got so excited about it that he signed up for lifetime access immediately. So I had to try it out for myself.
In this article, we’ll explore the ProjectionLab software using a test scenario. How does it stack up? Does it work for Semi-FI strategies like Coast FI? Is it useful for Australia and the specifics of our tax and superannuation system?
Let’s find out!
Note: I have no affiliation with ProjectionLab, I just like to try out new tools like this. 🙂
What is ProjectionLab?
ProjectionLab is a financial planning and modelling software specifically for people on the path to Financial Independence. It was developed by Kyle Nolan, a US-based software engineer and FIRE enthusiast. On the website, Kyle says that ProjectionLab allows us to “simulate your financial future and chart a course toward your best life.” That sounds like a fantastic premise!
Our Test Case
I put together a test case scenario that I think is pretty typical and hopefully relatable to many in the FI community.
Meet Rebecca (35) and Thomas (40). They are married and live in Melbourne, Australia. They both work full time, and both earn A$120,000 per year. For simplicity, I have not included any children in their life plans.
Rebecca and Thomas own their own home and have 20 years left on the mortgage. They also have some shares, typical super balances (retirement accounts), and an investment property.
The couple’s goal is to reach Flamingo FI and then semi-retire, earning $50,000 each per annum until they hit their FIRE goal.
I initially wanted to use Coast FI in this test case but changed it to Flamingo FI for reasons I’ll detail below.
First Impression and Setup
The ProjectionLab interface looks great – very intuitive and easy to navigate. It reminds me of YNAB (a software I love and have used since 2015). Getting started is also super easy. Kyle has definitely put a lot of thought into the user experience.
When you first start using the software, you are taken through a series of questions and settings. I entered the details from our test case above and tried to use settings applicable in an Australian context where possible.
Investments and Properties
I was pleased to find an Australian investment selection that includes superannuation (more on this below):
I set up the houses Rebecca and Thomas own (their home and IP). I used a mortgage calculator to figure out their monthly payments.
I noticed that there was no interest-only option (which I wanted to use for the investment property), so I used the payment amount from the online calculator.
There also wasn’t an option to set up an offset account (where they would typically keep their savings).
I used a 4% growth rate per annum for both properties.
The expense presets for the houses didn’t really align with what’s typical in Australia, so I made some manual changes:
For the investment property, I selected “Generate rental income”. The US presets for this made me laugh (and cry a little) – 12% of the property value per year! I changed this to a more realistic number for Australia.
There is also the option to enter dollar amounts for both rental income and property management, but there wasn’t a setting for periodic increases. So I used a yield (3%) instead. Unfortunately, the estimate for rental property tax deductions is only available in the US at the moment.
After I set up all investments and assets, the dashboard displayed a very nice overview of the couple’s net worth position:
Milestones and Financial Independence Goals
Next, I created a financial plan. The interface first asks which milestones we want to include in the plan. I set both Rebecca’s and Thomas’ retirement dates for when they reach Financial Independence.
Next, there is the option to choose how I want to define Financial Independence. And this is the piece of the software that I think needs some rework. Let me explain.
ProjectionLab is very flexible – which is fantastic. It offers many, many different ways to define financial independence – by net worth, liquid net worth, passive income, savings rate, age, super balance – you name it.
But – and this is a big but – it doesn’t allow for the concept of a “FIRE portfolio” that consists of different investments (in our couple’s case, this would be their brokerage account, superannuation and their IP).
Personally, I view my FIRE portfolio as separate from my non-FI assets. One’s total net worth also includes things like savings and the family home (clearly not FIRE assets), so defining FIRE as “Net worth = 25x expenses” doesn’t work for our test case couple. Sure, I could increase this to 30x or even 35x, but this just leads to inaccuracies.
There is the option to use liquid assets as the basis for the calculation, but that would then exclude things like investment property equity and super.
For a lack of better options, I went with the “Net worth = 25x expenses”, expecting things to get messy (which turned out to be true).
Next, I wanted to set up the Coast FI milestone for our couple. I was excited to see so many different milestone options the software provides:
I selected the “COASTFIRE” milestone and was surprised that I was asked to define it (the same way I was asked to define Financial Independence).
As a reminder, Coast FI is not a fixed number. Your Coast FI number changes with your age, so it cannot be defined as “15 x expenses” or similar (this was the preset in the software). So with the current options available, you cannot use ProjectionLab for Coast FI scenarios. I hope Kyle will include the Coast FI formula for this milestone in the future.
Instead, I created a custom Flamingo FI milestone. Flamingo FI is simply half your FIRE number (or 12.5x expenses), so this was easy to set up:
Return Assumptions and Taxes
Next, it was time to enter my return assumptions. I went with the default setting below, as it is pretty close to what I usually use for my calculations. It was great to see that there was also an option to use historical market returns.
When I got to the tax settings I was pleasantly surprised that there is a preset for different international tax systems. At this point, I was asked to sign up for the premium version of ProjectionLab to select the preset for Australia. I signed up for the 7-day free trial.
Next, I went to the Capital Gains Tax section. This was set to 100%, so I think the tax presets don’t include our CGT rules. I changed it to 50%, but this will obviously not be accurate if I sell an asset within 12 months of buying it.
Income and Expenses
Next, I set up the incomes for Rebecca and Thomas. To keep things simple, I just gave them a A$120,000 salary each (until they hit Flamingo FI), at which point they will go down to A$50,000 until they reach Financial Independence.
I set their expenses at A$60,000 per year for life (increasing with inflation).
Finally, I set up a withdrawal strategy (there are lots of strategies to choose from!) for when our couple reaches Financial Independence. I went with the classic 4% rule:
The Big Moment – The Plan
Once I was finished setting everything up it was time to have a look at the overview chart for Rebecca and Thomas’ plan.
I made some tweaks in the display settings section, and this is what the plan looked like:
I was really impressed by the graphics and level of detail of this graph (and the details section on the right).
One problem I noticed is that the tax presets for Australia don’t include negative gearing (or any deductions for IP expenses, for that matter). So the software calculates the rental income as normal taxable income without the associated deductions. I’m sure this is something I could somehow tweak manually to get close to a realistic tax estimate, but I didn’t bother in this example.
Luckily (and although their cash flow isn’t great in the earlier years of the plan), Rebecca and Thomas make it to the end of their plan with a healthy nest egg. I ran the Monte Carlo analysis and got this result:
Given that the numbers and presets used are somewhat inaccurate (as detailed above), the success rate doesn’t mean that much, but the Monte Carlo tool is certainly a nice feature of the software.
I hope you found this test case simulation helpful. Let’s now look at the pros and current cons of ProjectionLab and answer whether the software works for a) Semi-FI scenarios and b) in an Australian context.
For total transparency, I actually reached out to Kyle before publishing this post to provide him with my review. He was super responsive, and it is clear how much this project means to him. He was really interested in my feedback, and it sounded like he’ll revisit some of the issues I pointed out.
Does ProjectionLab work for Semi-FI strategies?
As discussed above, the big problem I see with the current options to define Financial Independence is that it’s not possible to create a FIRE portfolio consisting of different assets and accounts.
Using total net worth as a basis for these kinds of calculations is not the right way to do things, in my opinion. That applies, to “normal” Financial Independence as much as to semi-retirement strategies like Coast FI and Flamingo FI, of course.
The software does not use the correct formula for Coast FI. Your Coast FI number can’t be calculated based on a multiple of expenses as it goes up with age.
So at this point in time, ProjectionLab doesn’t work for most Semi-FI strategies, unfortunately.
I really hope Kyle adds these fixes/updates to the product roadmap at some point (from my conversation with him, it sounded like he will).
Does ProjectionLab work for Australians?
I love that the software includes presets for the Australian tax system. But there is more work to be done.
To make the scenarios and plans meaningful, here are some of the functionalities that would need to be included:
- Offset accounts
- Correct CGT calculations
- Negative gearing and tax deductions for investments
Sure, we could probably customise a lot of the settings to make them more applicable to our couple’s situation, but that would take a fair bit of time and effort (and would probably still not be 100% accurate).
What I really liked is that the software already includes superannuation, and all the presets I looked at seemed correct. It even calculates the 10% employer calculations from your salary (you have to use your pre-super salary for this to work correctly).
I can only imagine how much work it would be to get the tax rules for all supported countries 100% right. But if Kyle decides to tweak these things for Australian users I’m pretty sure ProjectionLab would quickly become a new favourite in the Australian FI community.
I love the look of ProjectionLab and the fact that Kyle has created financial planning software specifically for people on the path to FI.
The software is super intuitive and easy to use. ProjectionLab comes with so many options and is extremely flexible. It has so much potential, and I really hope it will eventually become for the FIRE Community what YNAB is for budgeting and expense-tracking enthusiasts.
I actually think that it is already perfect for, say, people living in the US who are on the standard path to FI.
For people using Semi-FI strategies and those in Australia (I have not tested the presets for any other countries, so I can’t speak for them), however, it is not quite there yet.
I actually had a lot of fun playing with ProjectionLab. I highly recommend you check it out. Make sure you share any feedback with Kyle – indie developers rely on feedback from the community.
I hope you found this review helpful. Thanks for reading!
Have you tried ProjectionLab yourself? What did you think?