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The Danger Bar! aka that red line between my charts...  

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Matthew Bellows
(@matthewbellows)
Member Admin
Joined: 1 year ago
Posts: 18
27/02/2020 9:56 pm  

The red line that appears between Income and Expenses, Investments and Debts, and underneath the Net Worth chart is meant to attract attention. 

It means that, taking into account your projected income, expenses and life events, you can't afford the plan you just changed. Some combination of life events, income and expenses and other factors are making the latest version of your plan unaffordable.  

You can see the math behind the Danger Bar by clicking on one of the bars on the chart. You'll notice that the sum of the "Surplus" is cumulative. In other words, if you are looking at your plan by year, your surplus or loss from one year will carry over to the next period. 

Before Retirement

Before retirement, the Danger Bar shows up when your expenses for the period are greater than your income plus your projected surplus. For example, let's say your income and your expenses were matching up closely for five years in a row. No Danger Bar there. But then you had a "Child Starts College" goal on the timeline. The Danger Bar would appear because your current plan doesn't have enough cash to pay for the goal. And the shortfall amount will compound from year to year, so by the end of the four year period, you might be $100,000 into the negative. After that point, although your kid is out of college, the Danger Bar will continue until your cumulative surplus covers your accumulated deficit. 

After Retirement

After retirement, when your income will mostly come from selling some of your accumulated assets, the Danger Bar only shows up when you have run out of "liquid" assets. These include cash, savings, surplus, mutual funds and retirement accounts. These "liquid" assets do not include real estate or college savings funds like 529s. 

The reason we chose to exclude these assets is we wanted to warn you that to afford a particular type of retirement, you would have to sell your home or liquidate your college savings account. You could always do that yourself in your plan with a Windfall event, but we didn't want to assume you would do that automatically. 

Of course, there are lots of things you can do to get rid of the Danger Bar. You can Reduce Expenses, get a Promotion, get a New Job, or you can remove or reduce some life events. The one thing you can't do, at least as far as we can tell, is afford the plan you just created. 

 

This topic was modified 7 months ago by Matthew Bellows
This topic was modified 4 months ago 2 times by Matthew Bellows

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