Go to the Expenses > Basics screen and enter into your plan an expense - e.g. Retirement income. This might be your current living expenses or a future expense such as Retirement Income. If you already have a general living expense entered into the plan, you might use this expense and simply step it up or down in retirement. More about this in a moment.
Be sure that the Time panel, to the right side of the Expenses > Basics screen, has stages or events selected that appropriately set the beginning and end of the expense. I personally recommend that you use events, found on the Time panel's Event tab. Select a start event (green dot) to indicate when the expense will begin and an end event (red dot) to indicate when the event will end.
Between the start and end events, you may use additional events to step up (increase) or step down (decrease) the expense at any given future year of the plan.
These steps are scheduled on the Expenses > Basics screen's Step Up / Step Down panel.
Note: You can easily add events to the timeline for the purpose of scheduling steps by going to the Time panel, to the right side of the screen, select the Event tab and click the New Event button, located in the bottom-right corner of the panel. Events can be added by year or owner age. Visit the Time screen if after adding an event you need to reposition or rename it.
To describe how to use the Step Up / Step Down feature, let's say that I am not yet retired and currently have living expenses of 40,000 pa. These expenses are entered on the Expenses > Basics screen and are set to inflate annually at a given rate.
On the Expenses > Basics screen's Time panel, Event tab, two events are selected to schedule the start and end of these living expenses:
- The Start event is selected (green dot)to indicate that the expense is active in the first year of the plan;
- The last event in the timeline, Mortality, is selected as the end event (red dot) indicating that the expense will end with the end of the plan.
I plan to travel and maintain my lifestyle when I retire, increasing my expenses in today's terms (present value, exclusive of inflation) from 40,000 to 60,000.
Later at age 80, I plan to increase my expenses to 80,000 to show the addition of long term care costs.
I already have a Retirement event in the timeline, so there is no need to add one to schedule the first increase.
To time the second increase at age 80, I go to the Time panel, to the right side of the screen, select the Event tab and click the New Event button, bottom-right. I create a new event called Long Term Care, select myself as the owner and enter age 80. An event is added to the timeline that will allow me to increase living expenses at that age.
Note: If you are editing an expense that has already been entered into the plan, be sure to first select the expense in the ledger to the right side of the screen before making updates.
Next, to model these steps, I expand the Expense > Basics screen's Step Up / Step Down panel.
In the drop down list of Timeline events, I select the Retirement event and enter the full revised amount of the income at Retirement. I enter 60,000.
Note, the stepped amount is a total, not an amount in addition to the current expense. Also remember to be consistent. If your expense is entered as a monthly amount, enter a monthly amount on the steps panel or if yearly, enter an annual amount.
An additional set of fields will appear automatically on the step up / step down panel, allowing me to increase or decrease the income again, if necessary.
In this case I would select the Long Term Care event and enter a stepped income of 80,000.
There is one additional consideration. Expand the Inflation panel. Here you can edit the inflation rate applied to the expense. This rate can also be altered in the future, if necessary, using steps. Moreover, you will find on this panel Present Value / Future Value settings. These two options determine whether inflation will be applied to the stepped amount.
Present Value is selected by default. This means that the values I enter on the Step Up / Step Down panel are in today's terms, in which case the inflation rate will be applied to the 60,000 I plan to spend starting in retirement. Since the amount is considered to be a present value, in today's terms, inflation will be applied to the 60,000 from the start of the plan until Retirement, when the stepped increase is made, and thereafter. So the increase to 60,000 will be an increase to an inflated 60,000, which will be a greater amount. The same inflation would be applied to the increase to 80,000 at age 80.
If you want to take inflation out of these future steps, ensuring that the 60,000 will indeed be 60,000 at age 60, only to be inflated thereafter, select instead the Future Value option.
The system default is Present Value because in most cases we believe it safe to assume that people are thinking of amounts in today's terms, but you have the option to treat these future amounts differently.
Finally, presumably you will have an income source your plan, which would likely be an asset, which in most cases would be one or more retirement accounts or perhaps other liquid assets such as savings and investments.