<topic sku="dlxbiz" tNum="287588" author="leighanw" xmlns="x-schema:hhTopicSchema.xml"><index><title>Learn about outflows on the Yearly Snapshot page of the Lifetime Planner</title><category>lifeplan</category><klink type="cncpt">Tell me about outflows on the Yearly Snapshot page in the Lifetime Planner</klink></index>
<content>
<p variant="impt">Remember that Money generates your Yearly Snapshot using data you've entered in your lifetime plan. Therefore, if you haven't entered any data that would fit into one of the sections listed below, you may not see that section on the <emph>Yearly Snapshot</emph> page.</p>
<p>The <emph>Outflows</emph> section of the <emph>Yearly Snapshot</emph> page shows where your money will go and is organized into the following areas:</p>
<extend>
<tease>Living Expenses</tease>
<reveal>
<p>In the Lifetime Planner, living expenses include both predictable expenses (such as food, clothing, and gasoline) as well as unpredictable expenses (such as health care and car repairs). Living expenses do not include taxes, contributions to savings, loan and debt payments, life insurance payments, or special expenses you've entered on the <emph>College & Other Expenses</emph> page. To enter your current living expenses, as well as significant life changes that will cause you to adjust your living expenses, go to the <emph>Living Expenses</emph> page.</p>
<p><emph>Reduce Discretionary Spending.</emph> In some years, your projected income may not be sufficient for you to make your planned contributions to savings as well as cover other outflows. When this occurs, the Lifetime Planner assumes you're committed to sticking to your saving plan and that you will reduce your discretionary expenses instead. The magnitude of this reduction is shown as Reduce Discretionary Spending. To specify the percentage by which the Lifetime Planner will reduce your living expenses, click <emph>Options</emph> on the <emph>Tools</emph> menu, and then click the <emph>Planner</emph> tab. Enter the percentage under <emph>Discretionary Expenses</emph>.</p>
<p>If you see Reduce Discretionary Spending in many years of your results, and the magnitude of these reductions is large, this may mean you'll have difficulty meeting your savings objectives and you should change your saving plan (on the <emph>Savings & Investments</emph> pages). If the projected spending reductions are small and occur in only a few years, most likely you'll be able to stick to your saving plan without any difficulty.</p>
</reveal>
</extend>
<extend>
<tease>Loan and Debt Payments</tease>
<reveal>
<p>This area shows principal and interest payments to loans, as well as payments to your debt reduction plan.</p>
<p>It's possible that the amount shown going into your debt reduction plan may not match the amount you entered in the Debt Reduction Planner. This is because the Lifetime Planner subtracts any expected spending on credit cards and lines of credit from the number shown here. To enter these types of expenses, go to the <emph>Living Expenses</emph> page.</p>
</reveal>
</extend>
<extend>
<tease>Contributions to Savings</tease>
<reveal>
<p>This area shows the amount of money you plan to deposit into your savings and investment accounts. To specify regular savings contributions, go to the <emph>Savings Contributions</emph> pages.</p>
<p><emph>Retirement Account Contributions.</emph> These contributions are to retirement accounts, such as 401(k) or IRA accounts. You won't see employer contributions (through matching or profit sharing) listed here, although they are included in the calculations. To see employer contributions, look in the <emph>Net Worth</emph> section of the <emph>Yearly Snapshot</emph> page.</p>
<p>In some years, your contributions may be smaller than the amount you specified on the <emph>Savings & Investments</emph> pages. That's probably because your planned contributions exceed the IRS limits. To view and change the IRS contribution limits, go to the <emph>Savings & Investments</emph> pages. The Lifetime Planner assumes that once limits are reached, you will either stop contributing or invest the amount above the IRS limit in taxable accounts. To specify which you prefer, click <emph>Options</emph> on the <emph>Tools</emph> menu, click the <emph>Planner</emph> tab, and then specify your choice under <emph>Contribution Limits</emph>.</p>
<p><emph>Taxable Account Contributions.</emph> These contributions include expected deposits into taxable savings and investment accounts. These accounts are shown under <emph>Taxable Accounts</emph> on the <emph> Accounts</emph> page.</p>
<p><emph>Save x percent of Surplus Income.</emph> If there is any money left over after expenses, loan and debt payments, life insurance payments, taxes, and savings contributions, the Lifetime Planner carries forward this surplus to the next calendar year in case that money will be needed. Then, it assumes that you, like most people, will find some way to spend it. However, if you think you'll be disciplined enough to save some percentage of this surplus, specify that percentage by clicking <emph>Options</emph> on the <emph>Tools</emph> menu, clicking the <emph>Planner</emph> tab, and entering the percentage under <emph>Sweep</emph>.</p>
<p><emph>Above Limit.</emph> In some years, your planned savings contributions to retirement accounts may exceed IRS limits. This may occur, for example, if you're currently saving 15% of your salary and your salary grows (with raises and promotions) to the point where 15% of your salary is higher than the IRS contribution limit. To instruct the Lifetime Planner what you plan to do when these limits are reached, click <emph>Options</emph> on the <emph>Tools</emph> menu, click the <emph>Planner</emph> tab, and then specify your choice under <emph>Contribution Limits</emph>. You can show that you plan to save the amount that exceeded the IRS limit (shown as Limit Exceeded) in your taxable accounts. Or, you can specify that you plan to stop increasing your savings once you reach contribution limits.</p>
<p><emph>Reinvest Proceeds from Selling an Asset.</emph> When you sell a home or asset, you may receive a large sum of money, even after loans, sales fees, and taxes have been paid. The Lifetime Planner assumes you'll reinvest this money in your taxable accounts.</p>
<p><emph>Reinvest Proceeds from Exercising Stock Options.</emph> When you exercise stock options, the Lifetime Planner uses the proceeds to pay for expenses and taxes during the year. But if there is a surplus, the Lifetime Planner assumes you'll reinvest the post-tax proceeds in your taxable accounts.</p>
<p><emph>Reinvest Excess Required Distributions.</emph> Government regulations require the owner of certain types of retirement accounts to begin making withdrawals at age 70 and one half. The Lifetime Planner uses the money that is withdrawn to cover taxes and other expenses during the year. But if there is a surplus, the Lifetime Planner assumes that you'll reinvest it in your taxable accounts.</p>
</reveal>
</extend>
<extend>
<tease>Life Insurances</tease>
<reveal>
<p>This area shows premium payments for any life insurance policies. For cash value or similar policies, the amount paid toward the policy's term portion is reported separately from the amount contributed to the accumulation portion. Contributions to the accumulation portion are labeled as invest fund.</p>
</reveal>
</extend>
<extend>
<tease>Special Expenses</tease>
<reveal>
<p>This area lists expenses like college tuition, vacations, and any other expenses you specify on the <emph>College & Other Expenses</emph> page.</p>
</reveal>
</extend>
<extend>
<tease>Buy Home/Asset</tease>
<reveal>
<p>This area shows the amount you plan to spend purchasing homes and assets. The amount shown is the total cost of the asset, which may be higher than the amount you use as a down payment. To specify when assets are bought and their purchase price, go to the <emph>Homes & Assets</emph> page.</p>
</reveal>
</extend>
<extend>
<tease>Penalty for Early Withdrawals</tease>
<reveal>
<p>For certain types of retirement accounts, withdrawals prior to age 59 and one half incur a 10% penalty. The Lifetime Planner may project early withdrawals from retirement accounts if they are necessary to cover expenses. If your plan shows early-withdrawal penalties, you may need to reduce your planned expenses or increase savings contributions to taxable accounts to avoid these penalties.</p>
</reveal>
</extend>
<extend>
<tease>Set Aside This Year's Surplus for Next Year's Expenses</tease>
<reveal>
<p>This is the amount left over from the current calendar year after expenses, loan and debt payments, taxes, and savings contributions. If you have surplus income, the Lifetime Planner assumes that you set it aside for expenses due the following calendar year.</p>
</reveal>
</extend>
<extend>
<tease>Spend Unused Surplus from Prior Year</tease>
<reveal>
<p>The Lifetime Planner carries forward any surplus income you have from one year to the next, in case it is needed for expenses. It then assumes that you, like most people, will find some way to spend it, either on required or discretionary expenses. This is what Spend Unused Surplus from Prior Year represents.</p>
<p>If there are many years where this amount is high, it probably means you can save more than you've planned. You may want to increase your amount on the <emph>Savings Contributions</emph> page. To instruct the Lifetime Planner to invest a portion of this surplus, click <emph>Options</emph> on the <emph>Tools</emph> menu, click the <emph>Planner</emph> tab, and then enter the percentage under <emph>Sweep</emph>.</p>
</reveal>
</extend>
<extend>
<tease>Taxes</tease>
<reveal>
<p>This area shows taxes that will be paid. This includes payroll taxes such as Social Security and Medicare, as well as taxes on income.</p>
</reveal>
</extend>
<extend>
<tease>Social Security and Medicare</tease>
<reveal>
<p>These taxes are calculated automatically based on information that you specify on the <emph>Career</emph> pages. Note that self-employed individuals pay higher Social Security and Medicare taxes than employees.</p>
</reveal>
</extend>
<extend>
<tease>All Other Taxes</tease>
<reveal>
<p>The Lifetime Planner uses the average tax rates to calculate your future tax liability. This is a simplification recommended by financial planners. Here's how taxes are calculated.</p>
<ol>
<li>The Lifetime Planner figures out your taxable income by adding your gross salary and other income.</li>
<li>The Lifetime Planner calculates your average tax rate using demographic data for people in your state of residence who earn as much as you do. For example, people who live in California and have $50,000 of taxable income might pay, on average, about 11% tax. This means that for every dollar that is earned, about 11 cents goes toward taxes. If you adjusted your average tax rate on the the <emph>Taxes & Inflation</emph> page to be, for instance, 3% higher than the demographic average, the Lifetime Planner would add 3% to the average rate it calculates.</li>
<li>The Lifetime Planner calculates your tax liability by multiplying your taxable income by the average tax rate.</li>
</ol>
<p>Because the Lifetime Planner recalculates your taxable income and average tax rate each year, in years when you have higher income you may have a higher average tax rate. Likewise, if you planned to take time off from work (reducing your taxable income), the Lifetime Planner might calculate a lower average tax rate.</p>
<p variant="note">The Lifetime Planner does not explicitly calculate deductions. But the net result of deductions is factored into the calculations the Lifetime Planner uses. The Lifetime Planner assumes you receive the same deductions as most people in your income range and state of residence. You can change this assumption by changing your average tax rate on the <emph>Taxes & Inflation</emph> page.</p>
<p>For special income you receive, such as an inheritance or proceeds from selling a house, you can specify the rate at which it is taxed. For example, you might specify that no taxes are due on an inheritance you receive or that proceeds from selling an asset are taxed at 20%. Any time you specify a tax rate on income, it is not included in the calculations for your taxable income described above.</p>
<p>Property taxes and sales taxes should be specified as expenses on the <emph>Living Expenses</emph> page or on the <emph>College & Other Expenses</emph> page. These types of taxes are not calculated automatically like income taxes; you must include them in your financial plan manually.</p>
