Negative Spending Capacity

“This plan's Portfolio Legacy Goal or Other/Variable Expenses exceed available resources. To achieve these goals, this plan would require additions to the investment portfolio (shown here as negative income) rather than withdrawals.”

This alert is typically displayed when a plan's Portfolio Legacy Goal and/or Other/Variable Expenses are significantly higher than the available resources in the plan. In an Income Lab plan that asks the question 'How much can I spend?', the software examines the plan's resources (portfolio, Social Security, other income, etc.) and calculates how much can be spent over the plan's life. 

This calculation also involves funding the Portfolio Legacy Goal (i.e., the amount left in the portfolio at the end of the plan) and any specific itemized other/variable expenses. When the legacy goal and other variable expenses are relatively low compared to the overall plan resources, spending is positive. However, in certain extreme examples, to fund these goals, no other spending is possible, and resources must be added to the plan. In that situation, gross-of-tax spending will appear as a negative amount. That means that, in order to fund these goals, the household would actually have to contribute to the portfolio, not draw from it.

As an extreme example, this plan has a $100,000 portfolio and a $2 million adjusted-for-inflation portfolio legacy goal. To fund this goal, the software indicates that the client would need to add $2,934/month to their portfolio and spend nothing. Clearly, this isn't a workable plan.

Usually, if you see this alert, it is due to a mistake in a plan entry. For example, maybe in this case, the portfolio was really $1,000,000, and the person who typed in the balance simply missed a 0. So, if you see this alert, the first thing to do is check all plan values to make sure they've all been entered correctly.