by Carolyn Rothwell on November 14, 2017

Silver's Retirement Capital Analysis Spending Needs


The Spending Needs amount on Silver's Retirement Capital Analysis is straightforward for single clients or when both individuals retire in the same year, but it is not as clear for couples when one individual retires and the second continues to work.

Silver begins the expenses upon the first retirement.  For couples, when an individual continues to work after the other is retired, the expense amount is reduced on the Retirement Capital Analysis by the net effect of his or her earned income. 




Let's work through an example where one individual is retired and the second is working in the first year of the plan.

Example Plan Variables

Retirement Expenses      $100,000
Working Individual Salary     $50,000
Pre-Retirement Tax Rate   25%
Contributions to Qualified Retirement Plan    $10,000

The first year of Spending Needs on the Retirement Capital Analysis will be $70,000, which is broken down below. 

Earned Income after Contributions and Taxes

Working Individual Salary        $50,000 
Contributions to Qualified Retirement Plan (10,000)
Tax Due on Salary ($40,000 * 25%)  (10,000)
Salary After Tax and Contributions $30,000 


Spending Needs Reduced by Net Income

Total Retirement Spending Needs   $100,000 
Salary After Tax and Contributions (30,000)
Reported  Spending Needs   $70,000 

 

RetirementSpendingNeedsSilver.png

Once the working individual retires the expenses will jump up to the $100,000 level increased by the inflation factor, as shown on the image above upon Ind. 2's retirement at 65. 



Spending Need Factors

Additional factors can come into play when calculating the spending needs amount. Each possible item is included below. 

  • Retirement expenses start when either individual reaches retirement age. 
  • The base spending amount is the value of the “Annual expenses during retirement” entered in Income/Expense input, increased for inflation. 
  • If one individual is retired, and the second is still working, the program will apply the working individuals after-tax and after-contribution income to reduce the spending need.
  • If additions are continuing into retirement, even if both individuals are retired, the after-tax expense of the contributions are added to the spending amount. 
  • If debt payments are included in expenses, any payments continuing into retirement are added to the spending amount. 
  • After the life expectancy of one individual, the spending need will change to “Annual expenses for a survivor in retirement” entered in the Income/Expenses input, increased for inflation.



If you need help verifying any amounts included in the software projections, contact our support team for assistance. 

Send us any questions, comments or suggestions anytime by Sending a Support Request.

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Carolyn Rothwell

Carolyn enjoys spending her time building Money Tree Software's brand and products. Her experience creating and delivering financial plans for a full-service financial planning firm and supporting advisors working to provide the best planning to their clients as a Money Tree support member has provided an excellent understanding of the importance of financial planning.