Use gross or net income in Lifetime Planner, and few other ponderings ??

Question

Quicken Classic Deluxe — Windows 11 Home —  After retirement, does Lifetime Planner require gross or net income on Social Security?? Or, does lifetime planner intuitively locate in expenses your transactions for a PDP (Prescription Drug Plan) and your C+ Plan that covers medical expenses not covered by Medicare Part A and B? Note: I for simplicity record only my net income on Social Security Income in Lifetime Planner. Would doing this cause inaccurate calculations in total income and future projections in years ahead for Lifetime Planner ??

Boatnmaniac · Accepted Answer

I enter the gross SS income.

Quicken does not "intuitively locate" the expenses for any insurance policies or normal living expenses.  You need to manually include these and most other expenses in the Living Expenses, Adjustments and Special Expenses section.

When you enter assets you have the opportunity to also enter various expenses for them (i.e., car loan, mortgage, property tax, etc.).  If you have entered those expenses against those assets, then do not include them in Living Expenses, Adjustments or Special Expenses or you will be double counting them.

The Planner is not a tax planning tool.  So, it does not look at your exemptions, deductions, etc., and reduce your gross incomes by those amounts.  Instead, what the Planner gives us is the opportunity to enter some basic tax information in the Tax Rate section.  I have been simply taking my average tax rate from my prior year's tax return and entering that number in this section.

The average tax rate is not to be confused with the bracketed tax rates that we see in the Tax Code.  The average tax rate is the total amount of income tax paid divided by the taxable income.  If you enter this data into the Tax Rate section Quicken will calculate the average tax rate for you.  You can then decide to let the Planner use that calculated avg tax rate or you can enter something different if you wish.  I have opted to enter an avg tax rate that is 2 percentage points higher than the calculated real average tax rate because I want to make sure that Planner calculates a more conservative income/assets supportability projection than if I use the actual average tax rate.  But that is a personal choice matter.

I for simplicity record only my net income on Social Security Income in Lifetime Planner. Would doing this cause inaccurate calculations in total income and future projections in years ahead for Lifetime Planner ??

This will end up causing the Planner to calculate a more conservative projection of your lifetime supportability.  This is because your net SS income should be the amount that remains after the SSA deducts for Medicare and, if applicable, federal income tax.  So, it is a duplication of the Medicare and federal income tax.  Provided you fill out the other sections correctly, I think it would be best for you to enter your gross SS benefit amount.

Also, in the Retirement Benefits section we have the ability to take a conservative approach in the planning process by reducing our SS benefit amount.  This feature was added a few years ago because Congress has not done anything, yet, to address the SS Trust Fund sustainability issue.  If Congress does not take action, the SS Trust Fund will be depleted by 2035 which will reduce SS benefit amounts by 15%-20%.  So, I have entered 20% because I do not trust Congress to fix the SS Trust Fund issue.

In addition to that, if the new Congress and POTUS get their way and cancel the tax that about 40% of retirees have to pay on their SS benefits, it will cause the SS Trust Fund to become insolvent in 2034 instead of 2035 and it will decrease the SS benefits by about 25% instead of 15%-20%.  So, I am thinking I might need to change my SS income to be reduced by 25% to see the impact of that.

BTW, that tax on SS benefits not only pays into the SS Trust fund but it also pays into the Medicare Trust Fund.  So if this tax is repealed it will pull in the Medicare Trust Fund insolvency date from 2036 to 2030 and it will likely result in increased Part B and probably Parts C and D premiums along with increased deductibles and copays.  I haven't figured out how to factor this risk into the Planner, yet.

But, if Congress does act and somehow improves the funding to the SS and Medicare Trust Funds (via increased tax rate or increased income cap or delayed retirement age or reduced COLAs???) then maybe the future won't be so bleak.

BTW, I am not being political by making these statements regarding the SS and Medicare Trust Funds.  I only mention them here because they represent real financial risks to everyone who will be in retirement and Medicare at that time.  These risks should be accounted for in Lifetime Planner so we can see the worst case projections.  Everyone can live with better than projected financials should that happen but if we underestimate the the reality it can be very "painful" for many people.  So, better to be safe than sorry, IMO.

Palace · Accepted Answer

Boatnmanic; Great detailed, incisive advise. Just what I was seeking, thanks a lot, much appreciated! I would conclude you have studied the Lifetime Planner for awhile. Proud you answered question about intuitive analytics in regards to the Planner, that did puzzle me. Guess we all have to wait till AI begins to run all our monetary computations. Just feed our money into the slot of the AI computer, it does all the calculations. Then bingo, all our worries are over 🤔🤣

Yea, I read politics is not allowed here. On a historical note though, if allowed? Remember my Dad as teenager lived in and around Warm Springs, GA during the Great Depression. Family worked as sharecroppers in the area; tough sledding back then as well. FDR had his Little White House in Warm Springs. Dad's Uncle had home near train station. Occasionally, he would see FDR arrive on train. He had car specially designed for him to drive. Sometimes he drove around, talked to farmers about 'how things going with you'?

Boatnmaniac · Accepted Answer

@Palace - I'm glad you find the information helpful.  I've been using the Planner in Quicken since 2010.  Before that I used MS Money starting in about 1998 and that had a Planner that was almost identical to what is in Quicken.   Of all the tools in Quicken I think Lifetime Planner is perhaps the most important because it ties everything together and can give one a heads up years and decades in advance on whether the financial plan is going to work or going to fail.   I largely credit it for allowing me to get into a financial position where I could very comfortably retire at 60.  It took a lot of work initially trying to understand the Planner and to learn all of the little things that can make or break it.  But once I got it set up and showing I had a good plan it became a lot easier mostly needing me to review and tweak it 3-4 times a year or whenever a major life event occurs.

I also do a sanity check every once in a while (now doing this only once every ~2 yrs) with other online lifetime planning tools and financial advisers. They have given me a lot of confidence in Quicken's Lifetime Planner.

That's an interesting story about your father.  My dad was born in 1926 so he didn't have much in the way of memories of the Great Depression.  One of the stories he used to tell me about was when he turned 18 in 1944 and volunteered with the Army Air Corps to be a pilot.  They put him into college for a year and then the war ended so he was discharged and no more college.  I'm actually glad he never got to see any duty in Europe or Asia because airmen during WWII had about a 50% fatality rate with about 52K killed in combat and other 27K killed in training and behind the lines accidents…79K total.  People think the Marines had it bad and they did, too, but their 40K killed in combat paled in comparison to the Air Corps losses.  Anyway, if he had seen combat duty, I would have had a pretty good chance of not being here today.  So, yeah, I'm glad WWII ended when it did.