Total Income Calculation
Boldin's total income calculation process is integral for accurate plan projections. It combines income from work, pensions, annuities, and passive sources, offering a detailed snapshot of user finances.
The total income calculation follows the formula: Income - Savings/Contributions - Expenses. It integrates income from work, pensions, annuities, and passive earnings while deducting planned savings. This ensures a clear view of available financial resources.
Note: Income linked contributions will always be funded and when income is not adequate to fund income linked contributions, withdrawals may be taken from savings. Standard contributions are only funded when there is adequate income. Once work income has ended, no contributions will occur and the user must instead add transfers from one account to another.
Surplus/Gap and Excess Income Calculation
When total income exceeds your planned savings and expenses, you'll have Excess Income, calculated as Income - Savings - Expenses. Users have the option to save a percentage of this Excess Income into after-tax accounts via the Money Flows > Excess Income setting.
Gap Calculation
When planned savings and expenses exceed total income in your plan, you'll have a gap. This is represented by the formula Income - Savings/Contributions - Expenses, allowing users to identify financial shortfalls in their cash flow.
The software will fund any gaps by modeling net savings drawdowns based upon your Withdrawal Strategy and Withdrawal Order. Your annual Net Savings Drawdowns can be seen in the Lifetime Income Projection chart.
Withdrawals, modeled monthly, ensure all financial gaps are addressed according to user-defined strategies. Users can view their impact on 'Insights > Savings > Withdrawals' for a clearer understanding of how these withdrawals affect long-term planning.
Shortfalls
You may notice the term "Shortfall" On the Retirement Withdrawals Report and other charts. Shortfall is the term that we here at Boldin use for a withdrawal that funds a gap. Shortfall withdrawals differ from other distributions such as RMDs, one time expenses, and disbursements.
The Planner displays annual information to users, while calculations on the back end are performed monthly. This may result in a case where a user has shortfall withdrawals and no Net Savings Drawdowns.
Temporary cash flow deficits, like those caused by early-year expenses or tax payments, might not impact the annual surplus. This is because monthly deficits can be offset by surpluses in other months, with yearly summaries netting out uneven cash flows.
When you have a shortfall withdrawal on the Insights > Savings > Withdrawals chart and no Net Savings Drawdown on the Lifetime Income Projection chart, the end of year account balances are not being reduced.
The most common cause of unexpected shortfall withdrawals is misunderstanding the Order of Operations. Income - Savings - Expenses = Surplus or Gap. Gaps are filled by shortfall withdrawals. Ensure that you are taking all of these factors into account when managing cashflow.
A second cause is when you don't have enough income in January to cover expenses and estimated tax payments applied at the beginning of the year. The tool will draw from savings in January and replenish savings with excess income saved throughout the year.
If the years where there you see a saved surplus and a gap on the Insights Surplus-Gap chart, you are likely drawing on savings to cover expenses early in the year.
