The Expenses section of the Profile is where a number of important variables are specified within the plan. This area is where you'll input pre-retirement living expenses, medical expenses, extra debt payments, and AUM fees. This is also where you'll determine the household's tax filing status and specify any local taxes.
There will be two expense cards pre-populated within this section when you create a new client plan. This includes the Pre-retirement Living Expenses card, as well as the Tax and Fees card:
For clients that have yet to retire, the pre-retirement living expenses card can be utilized to capture the household's monthly expenses within the projections. Click on this card to open a data entry drawer on the right side of your screen, allowing you to input the expense information.
Important Note on Living Expenses
When entering living expenses, please be mindful that this number should not include taxes or expenses that you have already captured in the Net Worth section. This includes mortgage and other loan payments, insurance premiums, and property taxes and maintenance fees.
There are two options when it comes to inputting living expenses- the quick and easy Simple Approach, and a more granular Detailed Worksheet:
The Simple Approach will ask you for a single amount, representing the sum total of the client's average monthly spending.
The Detailed Worksheet allows you to break out expenses into more specific expense categories, the sum of which will make up a client's monthly living expenses.
When using the Detailed worksheet, the expense categories are shared between the pre-retirement and retirement living expense cards, as well as the Budget module. If you've already filled out a detailed expense worksheet in either of these other locations, you can choose to copy the values into the pre-retirement living expense card via the "Copy From" button:
Customze your expense categories!
Budget / expense categories can be customized on a per client basis within the Gear Icon > Settings > Budget Categories tab. This can only be done after completing the initial data entry process.
To learn more about custom expense categories in RightCapital, click here.
Living Expenses will increase each year based on your General Inflation Rate, and can be tracked within the projections by navigating to the Cash Flows module in the Retirement section. Within the Cash Flows > Summary, click into the Expenses > Living Expense column:
The Tax and Fees card is home to several inputs, including the Tax Filing Status, AUM Fees, and Local Taxes:
Filing status
Within joint plans, filing status options include Married Filing Jointly, Married Filing Separately, and Non-Married Filing Single. Within individual client plans, options include Single and Head of Household. The option you select here will have a direct impact on the tax calculations in the future-looking projections.
Local tax
In applicable cases, you can specify any local municipal or city taxes within this card. Local taxes can either be entered as a percentage of AGI or gross income. Please be mindful not to include state taxes here, as those are calculated automatically within RightCapital.
Average AUM fees
This field allows you to enter average AUM fees, to ensure that their impact is captured within the plan. This will reduce all non-annuity invested asset returns by the percentage indicated (this includes bank accounts / the cash reserve).
To add additional expenses to a client plan, click the blue 'Add Expense' button in the upper right. This will allow you to choose from the following options:
Below you will find a brief overview of each expense card, followed by additional information on data entry, taxation, and cash flow location. Remember that if you ever have any questions while entering client data, you can always reach out to the RightCapital Support Team for assistance!
Pre-tax health care premiums, self-employed health care premiums, and other out of pocket medical expenses can be accounted for in this section by clicking Add Expense > Medical:
Please be aware that there is a separate card in the Profile > Goals section for Retirement Health Care Costs, which is primarily used to model Medicare expenses.
Monthly expense - the dollar amount (monthly) of the expense.
Owner - the individual for whom this medical expense is for.
Type - indicates the type of medical expense:
Out of pocket medical expense - reflects an itemized deduction on Line 1 of the Schedule A.
Pre-tax health care premium - reflects a payroll deduction for employer-provided health care, reducing wages on Line 1 of the 1040.
Self-employed health care premium - reflects the deduction for self-employed individuals on Line 17 of the Schedule 1.
Expense starts - The start year is the first year the expense is included in the plan.
Expense ends - The end year is the final year the expense is included in the plan.
Annual increase - indicates the percentage increase that will be reflected each year. You can choose 'Customized inflation' to enter a specific percentage.
Medical expenses will have different tax implications depending on the expense Type that you choose:
Out of pocket medical expense - reflects an itemized deduction on Line 1 of the Schedule A. Anything beyond the medical expense deduction threshold (7.5% of the household's AGI) will be deductible.
Pre-tax health care premium - reflects a payroll deduction for employer-provided health care, reducing wages on Line 1 of the 1040.
Self-employed health care premium - reflects the deduction for self-employed individuals on Line 17 of the Schedule 1.
Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
Medical expenses can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Expenses > Health Care > Other Medical Expense column:
Alimony expenses can be added to a client plan by clicking Add Expense > Alimony:
Monthly expense - the dollar amount (monthly) of the expense.
Owner - the individual for whom this alimony expense is for.
Expense starts - The start year is the first year the expense is included in the plan.
Expense ends - The end year is the final year the expense is included in the plan.
Annual increase - indicates the percentage increase that will be reflected each year. You can choose 'Customized inflation' to enter a specific percentage.
Divorce date - specify whether the divorce occurred before or after 1/1/2019:
For divorces prior to 1/1/2019, expenses are tax deductible (Line 19a of the Schedule 1, Line 10 of the 1040).
For divorces on or after 1/1/2019, there is no deduction for alimony expenses.
Alimony expenses will have different tax implications depending on the Divorce date that you choose:
For divorces prior to 1/1/2019, expenses are tax deductible (Line 19a of the Schedule 1, Line 10 of the 1040).
For divorces on or after 1/1/2019, there is no deduction for alimony expenses.
Sample tax forms can be viewed in the Tax > Tax Estimate > Details tab:
Alimony expenses can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Expenses > Other Expense > All Other Expenses column:
If you have entered a credit card or loan into the Net Worth section of the Profile, you will see an option here to input extra debt payments towards those loans. This can be done by clicking Add Expense > Extra Debt Payment:
Amount - the dollar amount of the extra debt payment. If the payment frequency is set to One-time payment, this will be the total amount. If the payment frequency is set to Recurring payments, this will be a monthly amount.
Debt - Choose the credit card or loan within the plan that this payment will be applied to.
Payment frequency - Determine whether this will be a One-time payment, or Recurring payments.
Expense starts - The start year is the first year the expense is included in the plan.
Expense ends - The end year is the final year the expense is included in the plan. If the Payment frequency is set to One-time payment, this field will be hidden.
Extra debt payments can be tracked within the Retirement > Cash Flows > Summary page, by clicking into the Expenses column. Extra debt payments will be added on top of the original payment amount for that year.
The exact location of the extra debt payment depends on the type of loan that is being paid down. The example below shows a large one-time extra debt payment towards a mortgage, found in the Housing column:
Adding an extra debt payment card within the Profile > Expenses section will incorporate that payment into the client's Current Plan in the Retirement Analysis module. To propose an extra debt payment, you can add the exact same data entry card using the Action Items.
The Add Expense > Other Expense option can be used as a catch-all to enter any additional expenses into a client plan. These cards give you full control over the amount and duration of the expense, as well as the tax treatment.
Tax Deductible Expense Options
Description
Taxable
Normal outflows in a financial plan that are funded by after-tax income or liquidating assets. This expense will not reduce the client's AGI.
Miscellaneous itemized deduction
Deductible expenses will be factored into tax calculations after the TCJA sunset in 2025 or immediately when using the 2017 tax law. If using TCJA no sunset tax law, the miscellaneous itemized deductions will not affect taxation within the plan.
W2 deduction
An expense that will reduce clients AGI seen on line 1 of the sample 1040 tax form.
Self-employed health care premium
Self-employed health care expenses are funded pre-tax from self-employment income cards and lower the client's AGI.
Above-the-line deduction
Above-the-line deductions are expenses subtracted from income before the adjusted gross income (AGI) is calculated for tax purposes. These expenses can be factored into tax calculations along with the Standard Deduction.
Above the line deduction - non cash
This option can be used to reflect a tax deduction without impacting cash flow.
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