How are the statistics on the Insights dashboard calculated?

The Insights dashboard shows a variety of statistics and measures for each year of the plan. Below, you'll see how these measures are calculated.

Stats Section

All statistics shown in the Stats section of the Insights dashboard reflect total annual numbers. Beginning-of-year values are used for balances, and the sum of all cash flows is used for income and expenses.

Income

1. In preretirement, this is simply all income in the plan for the chosen calendar year (wages, self-employment income, etc.) gross of taxes and savings. In other words, this is not a net-of-tax or net-of-savings number, but a gross income number. 
2. In the Income Plan phase, this measures all “spendable” income in the plan for the chosen calendar year, including income used to pay taxes and income used to fund specific other/variable expenses, but net of reinvested withdrawals. In other words, this is all income that could be spent on costs (including tax costs). Reinvested withdrawals (like money withdrawn from an IRA and put into a Roth IRA in a Roth conversion) are not really spent - they're just moved from one account to another. So, those aren't included in this concept of “income”.

Debt-to-Income Ratio

This ratio measures the amount of the selected year's total spendable income that would have to be used for payments on loans, like mortgages, vehicle loans, student loans, and more. This measurement is often used by banks to evaluate whether someone can afford a loan, and is also useful when evaluating whether a household's finances are healthy. Banks might look for a debt-to-income ratio of less than or equal to 28% for housing debt and less than or equal to 36% for all debt. A ratio of up to 43% for all debts might also be acceptable by many bank lenders. However, the exact debt-to-income ratio or threshold a household might target will vary.

Savings Rate

Total amounts saved into investment accounts, as a percentage of gross non-portfolio income that year. Reinvested withdrawals (such as Roth conversions or excess RMD withdrawals) are not part of savings since those funds are simply moved from one account to another. Also, withdrawals from investment accounts are not used in the denominator as part of income since only non-portfolio income, such as earned income from wages or self-employment, can truly be saved to enhance a portfolio's balance. The savings rate is shown on the Insights dashboard in years before the income plan begins, including the year when the income plan begins, if the income plan begins mid-year.

Target savings rates are often in the 10-20% range, with 15% being a common goal. (Keep in mind that if someone has a 4% match in an employer plan, this would mean 11% savings rate from earnings.) If saving starts later in life, it often has to be higher. If savings starts young, savings rates can typically be lower.

Withdrawal Rate

Total gross-of-tax spendable portfolio withdrawals divided by total portfolio balance at the beginning of the year. Funds withdrawn to be reinvested (such as Roth conversions) do not count here. For all years during the income plan phase of the plan, you will see the Withdrawal Rate shown on the Insights dashboard. For any years before the income plan begins, and for the first year of the income plan if it begins mid-year, you will see the Savings Rate.

Tax Rate

Total taxes (including Federal, state, and local taxes, as well as Medicare IRMAA) divided by total income. Importantly, total income as used here is adjusted gross income plus any income that is not taxable but can be used for spending, such as non-taxable Social Security benefits, withdrawn non-taxable principal, tax-exempt interest, and any other non-taxable income that doesn't get included in AGI. Importantly, this is not the same as the spendable income that is shown in #1. Total income used here includes taxable income realized from investment accounts (dividends, interest, capital gains from turnover).

Balance / Balance at Retirement

The total investment balance in the plan, either now (if the income plan has begun) or the projected balance at the beginning of the income plan.

Retirement Paycheck

The annual gross-of-tax spendable income for the income plan, either in the current year (not the year chosen on the timeline) or in the future year when the income plan begins.

Emergency Fund

Total banking account assets at the beginning of the year divided by total baseline expenses for that year, expressed as a number of months or years. If there are no baseline expenses in the plan for the chosen year, this will show ‘--’. If there are no banking assets (even if there are cash assets in investment accounts), this will show 0.

Net Worth Section

The Net Worth Section shows total assets and debt for the selected year, as well as net worth (assets - debt). You can view assets and debt information as dollars ($), percentage (%), or a ratio.

When you choose the percentage (%) option, the subtypes of assets and debt are displayed as percentages, showing the amount each category contributes to total assets or debt. For example, if total assets are $1 million and real estate is $400,000, real estate will be 40% of assets. If debts total $200,000 and $20,000 of that is student debt, the student debt percentage is 20%.

Asset and Debt ‘Ratios’

By viewing assets and debt as ratios, a user can see how these parts of the balance sheet compare to the household's cash flows. This helps view assets and debt in relative terms, providing a very helpful way to understand the true size or importance of assets and debt relative to income and expenses. 

All else being equal, an asset has a very different meaning to someone with low expenses compared to someone who spends a lot. And a debt means much more to someone with low income than to someone who earns a lot. These ratios helps draw these differences out.

The ‘Assets : Spending’ Ratio

The ‘Assets : Spending’ ratio shows how many times over the selected year's assets could cover that year's baseline expenses. This ratio is available both for total assets (e.g., “Total assets are 20x this year's baseline expenses.”) and for subcategories of assets (e.g., “Cash is 3x this year's baseline expenses.”). 

The assets-to-spending ratio, though perhaps a new concept to many, can be a very useful way to think about assets relative to spending. (Note that only baseline expenses are used in this calculation. Other/variable expenses are excluded.) For example, if someone has $1 million and spends $50,000/year, those assets are 20x their spending. But if they spend $500,000/year, it's only 2x!

Note that this ratio does not imply that someone would actually choose to deploy their assets by directly covering expenses year by year. Instead, this is a simple division calculation. (We're not taking into account any expected gains or growth of the asset(s) - that's what the overall plan is for!) 

The ‘Debt : Income’ Ratio

The ‘Debt : Income’ ratio shows how many years of income would be needed to pay off current debt balances. This is a simple division calculation that does not include the effects of interest on the debts. It is not meant to show how long someone would have to earn income and make payments to retire a debt. Instead, this ratio gives a way to understand the size of debts in relation to income, which is typically used to pay off those debts. 

In other words, it is saying, “if you used all of your income to pay off your debts today, here's how much of your income you'd have to use.” If the ratio is 0.6x, it's saying you'd need to put 60% of your gross-of-tax income into paying off the debts. If the ratio is 2.5x, you would need to put two-and-a-half times the selected year's gross-of-tax income into paying off debts (in other words, you couldn't do it in one year).

For example, if someone has a $100,000 mortgage, this is a larger debt in relative terms if income is $40,000/year (a ratio of 2.5x, meaning the debt is two-and-a-half times total gross income) than if income is $1 million (and so the ratio is 0.1x). In the first case, two and a half years of income would be needed today to pay off the debt balance. But in the latter case, just 10% of this year's income could pay off the debt balance.