Why do I see an income surplus in a preretirement plan?
Even if you are targeting a net-of-tax income amount in retirement, income or expenses before the income plan begins can lead to surpluses or shortfalls in the year of retirement if retirement is mid-year.
Last published on: October 31, 2025
Typically, if you are running a "How can I spend $X, net of tax?" plan in Income Lab, gross income and total expenses (including taxes) will match in every year. However, if an income plan starts mid-year, this won't always be true.
An income plan begins mid-year if, on the Plan Info tab, the income plan begin date is any month other than January and is either this year or a future year. If there are two people in the plan, you can choose which retirement date to use as the beginning of the Income Plan. In the example below, the Income Plan will begin in August 2025.
Given that the Income Plan will begin in August of 2025, the plan will contain only 5 months of an Income Plan (August-December) in 2025. All months before this (January-July) are pre-retirement. The plan is not targeting any particular net-of-tax income amount for this preretirement period. Therefore, the plan could very well have a surplus (or even a shortfall) for 2025 once the pre-retirement and in-retirement periods are combined.
For example, let's imagine this household is receiving $20,000/month in wages, which will stop in July 2025. Starting in August 2025, they will target $8,000/month in net-of-tax income. They also have $8,000/month in pre-retirement expenses in the plan. In this example, we'll imagine taxes are a flat 10% on all income.
| 2024 | 2025 | Jan-Jul 2025 | Aug-Dec 2025 | |
| Wages | $240,000 | $140,000 | $140,000 | $0 |
| Portfolio Withdrawals | $0 | $44,444 | $0 | $44,444 |
| Taxes on Wages | $24,000 | $14,000 | $14,000 | $0 |
| Taxes on Portfolio Withdrawals | NA | $4,444 | NA | $4,444 |
| Net Income | $216,000 | $166,000 | $126,000 | $40,000 |
| Non-Tax Expenses before Income Plan | $96,000 | $56,000 | $56,000 | NA |
| Non-Tax Expenses during Income Plan | NA | $40,000 | NA | $40,000 |
| Total Non-Tax Expenses | $96,000 | $96,000 | $56,000 | $40,000 |
| Surplus | $120,000 | $70,000 | $70,000 | $0 |
Here we see that there is a surplus in the plan in 2024 because net wages exceed the stated expense goal of $8,000/month ($96,000/year). In preretirement, an Income Lab plan does not force net income to equal net expenses. (The same is also true during retirement for a "How much can I spend?" plan.)
In 2025, the year of retirement, we also see a surplus ($70,000). But when we split the year into pre-retirement and in-retirement sections, we see that the entire surplus is related to pre-retirement. The in-retirement plan is indeed netting $8,000/month (=$40,000 in five months).
In summary, if a plan shows a mid-year retirement and contains any income or expenses before retirement, you may see a surplus or shortfall in the year in Life Hub. If you would like to eliminate this first-year-of-retirement surplus or shortfall, you'll have to add additional pre-retirement expenses or income in that year. For the example above, an extra $70,000 in 2025 pre-retirement expenses would eliminate the shortfall. This could be entered as $10,000/month in "Preretirement Expenses" from January 2025 to July 2025.
| 2024 | 2025 | Jan-Jul 2025 | Aug-Dec 2025 | |
| Wages | $240,000 | $140,000 | $140,000 | $0 |
| Portfolio Withdrawals | $0 | $44,444 | $0 | $44,444 |
| Taxes on Wages | $24,000 | $14,000 | $14,000 | $0 |
| Taxes on Portfolio Withdrawals | NA | $4,444 | NA | $4,444 |
| Net Income | $216,000 | $166,000 | $126,000 | $40,000 |
| Non-Tax Expenses before Income Plan | $96,000 | $126,000 | $126,000 | NA |
| Non-Tax Expenses during Income Plan | NA | $40,000 | NA | $40,000 |
| Total Non-Tax Expenses | $96,000 | $166,000 | $126,000 | $40,000 |
| Surplus | $120,000 | $0 | $0 | $0 |