Earnings Folder

This folder asks you to project your family’s future pre-tax labor earnings and retirement age as well as those of your spouse/partner. Retirement age is the age from which labor earnings will be zero. This may be later than the age at which you or your spouse/partner stops working at your respective principal jobs if you or your spouse/partner plan to work for pay thereafter.

If you are married or have a partner, the earnings you enter for yourself will be assumed to stay the same if your spouse or partner dies. If this is not the case, activate the Contingent Planning input folder by clicking on that folder and use that folder that is thus activated to specify how the early death of a spouse/partner will affect the surviving spouse/partner’s labor earnings. For example, a person may decide to return to full-time work if his or her partner dies.

The earnings folder considers two types of earnings: employee wages and self-employment earnings. All earnings are entered in today’s dollars, that is, dollars valued relative to the current year. If you are married or partnered, begin by selecting a spouse or partner, enter that spouse/partner’s retirement age and earnings data, and then select the other spouse/partner and do the same. Enter wages, including your contributions to retirement accounts (the program will be aware of tax-deferred contributions when calculating your taxes). Other amounts such as payments to cafeteria health plans, parking, or union dues can be entered as taxable or non-taxable special expenditures. (see Special Folder below). How exact do you need to be about these other paycheck expenses? The two main issues here are that you want your tax calculation to be accurate and you want your final consumption number to be accurate. If, for example, parking is deducted on your check from gross wages but not accounted for in special expenditures, you might want to make a mental note that your final consumption (and standard of living) reflects the fact that you have already paid for parking. But many users might ignore this kind of fine tuning unless the amounts are significant and recurring and not accounting for them as special expenditures would tend to misrepresent taxes and the final consumption amounts. If you include a paycheck-expense such as parking or union dues in wages and then enter it as a taxable or non-taxable special expenditure, your taxes and household consumption number will be adjusted accordingly. If you are contributing to a retirement plan like a 401(k), for example, leave that amount included in your earnings. The program will know how to handle this because you will enter that amount as a contribution to retirement accounts in another area of the program.

To enter labor earnings, click on the grid to select a year, enter the earnings amount (in today’s dollars) for that year in the dollar field, and click the Apply button. In the current year, today's dollars and nominal dollars are the same. If you want your earnings in years after the selected year to grow at a constant (above/below inflation) rate, enter the desired rate, and click the grow button. But remember, if you get a raise of say, 4%, your earning power is raised by only 1% each year if you assume 3% inflation in the Assumptions panel. If a typical raise at work is 4% per year, and you assume 3% inflation, you should grow your wages by 1% (notice the entry area asks for growth in “real terms”) and the program will adjust your future earnings for inflation to reflect today’s dollars. In other words, if real wages (wages valued in today’s dollars) will stay fixed, enter current wages and grow them at a zero real rate. This will make nominal wages (actual wages received) keep pace with inflation. In other words, if you expect a raise for “cost of living,” a COLA, enter 0% growth and the program will assign you a raise each year that matches what you enter for inflation in the Assumptions area (defaults at 3%).

The earnings you enter (or see entered for you using the grow button) for future years are in today’s dollars, which means they have the same purchasing power as that amount of earnings has in the current year.