“Spend it all”

We were recently asked whether we could add an option to “spend all net income.”

The financial advisor said that their client is just going to spend whatever is available and wanted the cash flow projections to reflect this.

We have considered an option to “spend all excess funds.”

But we have not done it, and we are not considering doing it now.

Why not?

Because if we had the option to “spend all net income,” and it was selected, then every year that had positive net income would end with zero.

The report would just have a bunch of zeros as net income for every year.

We would be removing whatever useful information the projections were generating.

For this client, we think it is better to let the software show the net income each year. The individual can read this as “this is the amount you will have available to spend each year, in addition to expenses we have entered.”

One thing that the planner could do would be to set all of the rates of return on accumulated savings to zero. (This is on the Assumptions screen, under Settings.)

Then the amounts of net income that are saved will pile up, but they will not compound. So they will not generate net income in future years and “distort” the future net income projections.

If the planner thinks the net income will all be spent, the planner can then simply ignore the accumulated savings amounts and see what the net worth would be at the key time (5 years, retirement, age 80, etc.) net of accumulated savings.

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