What are 'Reinvested Withdrawals' and 'Other Savings'?

Income Lab plans carefully track cash flows to and from investment accounts. Along with 'Planned Savings' (which reflect savings explicitly included in the plan inputs) and 'Roth Conversions', you may see two other categories of cashflows that go to the investment portfolio. Funds in both categories are returned to taxable accounts in the investment portfolio to be used in the future.

1. Other Savings: Excess non-portfolio income beyond what is needed for planned spending.
2. Reinvested Withdrawals: Withdrawals from investment accounts in excess of planned spending.

Other Savings

Income Lab plans have either a 'Spending Capacity'/'Retirement Paycheck' or a 'Budgeted Spending' level. In either case, in any given year, the plan could contain non-portfolio income that exceeds this amount. In that case, the excess is put in the portfolio as 'Other Savings'. In this way, the resources in the plan are smoothed out so that resource-rich years provide savings that fund more resource-poor years.

You can also think of 'Other Savings' as 'Excess Income' or 'Spillover' from non-portfolio income. For example, this plan contains a few years when wages are still being earned. Excess wages and pension funds are put in the Taxable account.

If you want to direct where these 'Other Savings' go, you can enter a savings item in the plan. (During the income plan, these savings items will only be funded if there is non-portfolio income in the plan.) The savings will then be removed from 'Other Savings' and will appear in 'Planned Savings'.

Reinvested Withdrawals

Withdrawals from investment accounts can be triggered by things other than the need to fund planned spending.

1. Required Minimum Distributions (RMDs)
2. Planned distributions from inherited accounts (inherited IRAs, etc.) and non-qualified deferred comp plans
3. Custom account-level distribution plans
4. Annuity living benefit distributions

If the amount of these withdrawals exceeds what is needed to fund planned income, the excess will be reinvested in taxable accounts as "Reinvested Withdrawals". During the income plan, this is true for all withdrawal types above (1-4). In pre-retirement, only RMDs, inherited account withdrawals, and non-qualified deferred comp withdrawals are automatically reinvested. (You have control over custom account-level withdrawal plans and living benefit distributions, so these can be adjusted to be avoided in pre-retirement.)

For example, this plan has a $100,000 lump-sum withdrawal from a 401(k) account. However, since there is also a high level of non-portfolio income from wages and a pension, these funds are not needed for spending. So, they are put into the taxable account as reinvested withdrawals.

The only way to avoid reinvested withdrawals is to include expenses in the plan that these withdrawals can fund.

Reinvesting RMDs

Many plans, especially those that do not include Roth conversions, will show growing RMDs later in the plan in Life Hub and Tax Lab. This is because the projections in these sections of the plan reflect average returns and no guardrail-related adjustments to income. In these situations, RMDs often exceed what is needed to fund planned income, and the excess is reinvested in taxable accounts. (RMDs cannot be rolled over to an IRA or converted to Roth accounts.)

It is not possible to automatically produce a plan that "spends the RMDs". However, you can add expenses to the plan to ensure that some or all of the RMDs are spent. If you do this, you will notice that the 'Spending Capacity'/'Retirement Paycheck' of the plan will go down. (Or, if you have a "How can I spend $X, net of tax?" plan, you will see the risk of this plan go up and the performance in the Retirement Stress Test suffer.) That's because spending RMDs is not 'free' - it removes resources from the plan and leaves less resources to be spent on other needs.

In some plans, you may see RMDs being reinvested even when there is a shortfall between income and spending + taxes. This may be surprising because it looks like those RMDs are available to fund the shortfall. However, this is by design, and is due to the way that 'How much can I spend?' plans work. These plans do not target a particular spending level, and so they can produce shortfalls and surpluses in any given year. To avoid this situation and address shortfalls (and surpluses), consider adopting a "How can I spend $X, net of tax?" plan.