Annual Savings

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retiresoon
Posts: 2
Joined: Wed Mar 13, 2019 11:11 am

Annual Savings

Post by retiresoon »

Hi!

Awesome program! Getting used to it. I plan on donating to the cause to help future development. :)

Wondering how savings are handled. I see an input screen for annual savings. But I'm wondering what happens to any excess income after expenses for a given year?

Would that not be "deposited" into my portfolio?

Would adding an input for savings then be double dipping?

Thanks for your help!

Scott
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Annual Savings

Post by jimr »

During the accumulation phase before retirement, the program doesn't track income vs. expenses at all, so the only way to get new money into your portfolios is to use the savings cash flows.

Once retirement starts, the program covers annual expenses first by using any income available. If after tax income in any year after retirement starts is greater than expenses, the difference will automatically get deposited into the taxable portfolio. Once RMDs start, they also can enter the mix and if RMDs or RMDs plus income (after taxes) are greater than expenses, the difference will be deposited into taxable.

You can track all this in the year-by-year detail view by selecting the show more detail radio button.
retiresoon
Posts: 2
Joined: Wed Mar 13, 2019 11:11 am

Re: Annual Savings

Post by retiresoon »

Thanks for the response!

I tried "tricking" the system by saying I "retire" at 56. I'm 55. For my additional inputs I am using actual ages instead of "retirement year". That way it should add any left over income as savings, correct? I won't truly retire for at least 15 more years but don't want to add annual savings year by year as it would change if I use different income/expense inputs.

I also added actual historical data for the last 40 years for CPI and SP500 year by year.

It looks like the program handled these changes fine. Do you see any reason why it shouldn't work as it's not the way the program was actually designed to work?

Thanks again!

Scott
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Annual Savings

Post by jimr »

What you've described makes sense, but again, it's key to carefully check everything in the year-by-year detailed view.

One potential gotcha is that if expenses are greater than income in any years before you hit age 60 and the program needs to pull money out of the tax deferred portfolio to cover the shortfall, it'll add a 10% early withdrawal penalty. As long as your income is always greater than expenses in those years or if you have some funds in the taxable portfolio, that shouldn't be an issue.

Jim
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