Understanding a Structured Income Plan that has a Target Income and an After-Tax Target Columns

Client Information: 

• Jane Doe, age 61; birth date: 01/01/1965; retirement age: 67 

Incomes: 

• Wages: $175,000 growing at 2.8%; Social Security (SS) at 67: $36,000 COLA at 2.8% 

Assets: 

• Taxable Brokerage Account (BA): $800,000, Moderate Aggressive 4% net growth per year

• Tax Deferred IRA: $1,000,000, Aggressive 5% net growth per year  

• Tax-Free ROTH: $100,000, Aggressive 5% net growth per year  

 Goals and Objectives: 

• Target Income: The first year will start at $100,000 with an inflation factor of 2.8%. At age 67 the Target Income will reset to $90,000 with an inflation factor of 2.8%. At age 77 the Target Income will reset to $80,000 with an inflation factor of 2.8%. 

• Brokerage Account: Contribute any excess savings into this account each year until the age 67. At retirement, this account will be withdrawn from in order to meet the target income in retirement. If and when there are any years with excess savings during the retirement  years, that excess will be reinvested back into the Brokerage Account. 

• Tax Deferred IRA: Contribute $8,000 until the age of 67 and starting in retirement years withdrawal amounts to reach the target income for the remainder of the plan. 

• Tax-Free ROTH: Contribute $7,000 until the age of 67 and starting in retirement years liquidate the account within ten years. 

Expenses: 

• Gifting to Children: While working, Jane will gift $12,000 annually; during retirement, Jane will reduce the annual gift to $6,000 for the remainder of the plan. 

• Travel: While working at $6,000 with an inflation factor of 2.8%, while in retirement until age 80 $12,000. 

Step 1: Prepared By: This represents who is the person who created the structured income plan. 

Step 2: Initial Plan Date: This date represents the first day of the structured income plan. 

Step 3: Revised Plan Date: This date represents the most recent date that the structured income plan was edited. 

Step 4: Scenario: This text box shows the scenario you are currently viewing. To switch scenarios, click the dropdown arrow to toggle between scenarios.

Step 5: Planning Horizon: This text box displays the timeline for the planning scenario. To adjust the timeline, click the dropdown arrow and select a time frame. 

Step 6: Final Row: The final row indicates the last year of the planning horizon.

Step 7: Numbers at the End of the Plan: Note the numbers at the end of the plan; they represent the total amounts of the columns.

Step 8: RMD Column: This column represents the amount that needs to be withdrawn from qualified accounts, which for this plan includes just the tax-deferred IRA. The background color is white, which indicates the exact RMD amount has been withdrawn. If the background color is red, not enough is being withdrawn to satisfy the RMD for that year. If the background color is green, more than the RMD is being withdrawn from qualified accounts in that year. 

Step 9: Year: Each row represents one year in the plan.

Step 10: Name & Age: This column displays the client’s name and age. 

Step 11: Brokerage Account & Income: The grayed-out section displays the growth rate (shaded in orange) and the initial account balance. The left column with the header "Account" displays the estimated account balance at the end of that year. The right column with the header "Income" represents any cash flow in or out of the account in that year. Since the header is "Income" a contribution would be negative and a withdrawal would be a positive number. 

Step 12: Tax Deferred IRA Account & Income: This follows the same pattern as the Brokerage Account with "Account" and "Income" columns. 

Step 13: Tax-Free ROTH Account & Income: This follows the same pattern as the Brokerage Account with "Account" and "Income" columns. 

Step 14: Accounts Total: The sum of all the assets displayed by year. 

Step 15: Planned Distribution: This is the netted total of all funds added or withdrawn from the accounts in that year of the plan. Numbers in (parentheses) indicate overall net savings to accounts in that year; numbers not in parentheses indicate a net withdrawal from accounts in that year. 

Step 16: Percent Distribution: This value represents the percentage amount of the total funds added or withdrawn from the account in that year of the plan. If the percentage is a negative amount, it represents the amount being deposited to accounts in that year. If the percentage amount is positive, it represents the rate of withdrawal. 

Step 17: Wages: This column is part of the income section and represents the client’s yearly wage. The orange section displays the annual growth rate for the yearly wage increase. The starting wage amount corresponds to the value entered on the income page. Similarly, the annual growth rate is initially populated based upon the percentage specified on the income page in the client dashboard. 

Step 18: SS: This column represents the Social Security income. The Income begins based on the age specified for this income in the structured income plan. You can change the start-date for social security using the "Manage" button for the Social Security Income. The orange section displays the annual growth rate for this income. 

Step 19: Gifting to Children: Expenses are modeled as negative income amounts. The orange section displays the annual growth rate for this expense. Since this amount is an expense, it is displayed as a negative number. 

Step 20: Travel: Expenses are modeled as a negative income. The orange section displays the annual growth rate for this expense. Since this amount is an expense, it is displayed as a negative number.

Step 21: Approx Income Tax: This is the estimated income taxes and effective tax rate percentage for each year in the plan. 

Step 22: After Tax Income: Since this is an Income Plan, the after-tax income is the same as the annual after-tax cash flow the plan generates each year. 

Step 23: After Tax Target: The after-tax target is the annual after-tax cash flow that the client would like to have. Any income generated over this amount will be reinvested into Accounts. The inflation factor represents how much their target income or annual target after-tax cash flow needs to rise to maintain the spending power illustrated in year 1. 

Step 24: Income Gap: This column indicates whether there is a monetary difference between the After Tax Income and After Tax Target that is not being made up using deposits or withdrawals from accounts. If the numbers are red, this means there is an income shortfall for that year by the amount in red and the actual income generated from the netted account withdrawals plus incomes minus expenses and taxes is less than the After Tax Target income. If the numbers are green, there is an excess, which means the actual income generated exceeds the target income and is not being reinvested into the accounts. If the number is 0 and has a white background, it means that the After Tax Income and After Tax Target are perfectly aligned and equal.If you feel you need more support or would like to set up demo time with one of our representatives, please contact us at: support@planscout.com