How Is Discretionary Spending Calculated?

With my current set of inputs, my current discretionary spending is negative. This obviously isn't true, so I'm assuming I have a problem with my input data but am having a problem tracking down what it might be. Can someone explain how current discretionary spending is calculated?


dan royer's picture

Are you sure it's discretionary spending that is negative? Discretionary spending is a number that is calculated based on a whole matrix of calculations that include income, spending, insurance needs, children in the household, etc. It's an extremely complex calculation. But you shouldn't see that going negative. Do you mean "regular assets"? If so, that could be the maximum indebtedness setting in Assumptions. Otherwise, upload your database to a support ticket and I can take a look.

I too am seeing a very large negative value for discretionary spending (and yes it is Discretionary Spending) for the current year (2015). In future years the numbers look believable. I am using Conventional Planning. All values for "Smooth Withdrawals" under Retirement Accounts are set to 0.

dan royer's picture

With conventional planning this could happen because the plan is not affordable. The value of the "Conventional planning" mode seems to me more in showing the folly of trying to set your own spending target than in anything very practical. Go back to Economics based mode and let the program do what it's really designed to do: smooth your discretionary spending. Conventional planning also ignores the two can live as simply as 1.6 (default) if there is an age difference in a married/partnered model. Thus, if one dies earlier than the other, the survivor continues to live at this conventional planned target. Conventional planning makes the mistake of using as an input variable what really should be the output, or result of a dynamic calculation. If that's all you got (like 99% of the financial planners) then that's all you got. But with ESPlanner you have the option of letting the software show you the highest and smoothest sustainable discretionary spending, so it's best to use economics mode.

Thanks Dan. It would be nice to include some of your comments (like the "two can live.....") in the Understanding the Choices paragraph on the Planning page.

dan royer's picture

Yes, I'll look at that.

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