How the projection engine works

Every result in the app comes from one engine. It steps through your plan one month at a time, from today to the end of the plan, and records every transaction. The same engine runs the average path on Cash flow and each simulated future on Outlook.

The engine runs in your browser. Your plan isn't sent anywhere to be calculated.

Each month, in order

1. Rules you've set are checked.
2. Earned income arrives: pay, bonuses and self-employment income.
3. Other income arrives: Social Security, pensions, annuities and deferred compensation payouts.
4. Spending is paid: essentials, then flexible items in priority order, then healthcare, debts, property costs, insurance and goals.
5. Contributions go to accounts. Payroll contributions and employer matches come out of pay before it reaches cash.
6. Estimated tax is paid.
7. In December only: qualified charitable distributions, required minimum distributions, Roth conversions and any bracket-filling withdrawals.
8. Cash is managed. A shortfall is covered from investments in your withdrawal order. Cash above your buffer goes to savings in the order you set.
9. Market returns are applied to end-of-month balances.
10. In December, the year's taxes are settled and the year is closed.

Returns within a year

Each simulated year has one return for each asset class. The engine spreads it evenly across the 12 months, so the months compound to exactly that year's return. This keeps each year's returns and the relationships between asset classes exactly as the simulation drew them.

The trade-off is that the path within a year is smooth. Drops and recoveries inside a single year are understated.

Cash and spending

All income lands in your main cash account, and every expense is paid from it. At the end of each month the engine keeps a cash buffer, measured in months of essential spending. New plans use six months.

Essentials are always paid in full unless you allow a spending strategy to cut them. Flexible items are funded in priority order until the strategy's budget runs out. Each is recorded as funded, partly funded or dropped.

Withdrawals

When cash runs short, the engine sells investments in your withdrawal order. If you haven't set one, it uses cash, then taxable accounts, then pre-tax accounts, then Roth accounts, then HSAs.

Before 59½, the engine avoids early-withdrawal penalties by default. It first takes only money that can come out without a penalty. Examples are taxable accounts, Roth contributions, governmental 457(b) plans, and employer plans after leaving a job in or after the year you turn 55. Only if that falls short does it take penalized money.

You can also choose a proportional order, custom steps with yearly caps, or bracket filling. See withdrawal order.

Required distributions and Roth conversions

Each December the engine works out each pre-tax account's required minimum distribution from the prior year-end balance and the IRS table, using the owner's birth year for the starting age. Withdrawals already taken from the account that year count toward it.

Roth conversions can be a fixed amount each year or fill a chosen federal bracket, between start and end dates. Options can stop a conversion before the next Medicare surcharge tier or the ACA subsidy cliff. The tax is paid from other money at year end. Each conversion starts its own five-year clock.

Inflation and today's dollars

Each income and expense can grow with general inflation, with a category such as healthcare, at a fixed rate, or not at all. Amounts step up once a year, at the start of the year.

Today's-dollar figures divide by the general price level in that year of that simulated future. Social Security cost-of-living adjustments follow the same inflation.

Cost basis

Taxable accounts are tracked in tax lots. Sales use first-in, first-out by default, and lots held more than a year produce long-term gains. Reinvested dividends and interest are taxed each year and create new lots. Pre-tax accounts track any after-tax basis. Roth accounts track contributions and conversions separately, in the order the IRS uses.

Paying taxes

Payroll taxes are withheld from pay each month. From the second plan year, the engine pays estimated income tax monthly, based on last year's tax or this year's tax so far, whichever is lower. In December it computes the year's tax and settles the difference. In the first plan year there are no estimated payments, so the whole year settles in December.

The engine doesn't model underpayment penalties or the 110% safe-harbor rule.

Deaths

At each death, accounts with no other beneficiary pass to the surviving spouse. Retirement accounts are treated as the spouse's own. Individually owned taxable accounts and property get a full step-up in basis. Jointly owned ones get a half step-up, or a full one in community property states.