The yellow or red lines that appear between Income and Expenses, Investments and Debts, and underneath the Net Worth chart are Danger Bars. These are provided to draw your attention to potential time periods where your plan needs to be adjusted.
Yellow and red Danger Bars correspond to potential imbalances, where some combination of life events, income and expenses and other factors indicate that, according to our models, the current version of your plan is off track. Yellow Danger Bar highlights periods where after taking into account your projected income and cash reserve, our model suggests you’ll have to dip into your spendable assets to afford your current expenses and life events. Red Danger Bar highlights periods when it is unlikely that you will be able to afford your expenses and life events after using both your cash reserve and spendable assets.
You can see the math behind Danger Bar by clicking on one of the bars on the chart. You'll notice that the sum of the "Surplus" or “Loss” is cumulative. In other words, if you are looking at your plan by year, your surplus or loss from one year will carry over to the next period. Note that the calculation methodology for red Danger Bar differs slightly before and after retirement. This is due to an adjustment in assets in consideration of retirement.
Before retirement, red Danger Bar shows up when your expenses for the period appear to be greater than the sum of your income, projected cash surplus and spendable, non-retirement assets.
For example, let's say your income and your expenses were matching up closely for five years in a row. No Danger Bar there. But then you had a "Child Starts College" goal on the timeline. The Danger Bar would appear because, based on our models, your current plan doesn't have enough cash nor spendable assets to pay for the goal. And the shortfall amount will compound from year to year, so by the end of the four-year period, you might be $100,000 into the negative. After that point, although your kid is out of college, the red Danger Bar will continue until your cumulative surplus from income and spendable assets covers your accumulated deficit.
The main adjustment in red Danger Bar calculations after retirement is that both retirement and non-retirement assets are accounted for as spendable assets. After retirement, when your income will most likely come from selling some of your accumulated assets, the red Danger Bar only shows up when you have run out of liquid assets. These include cash, savings, surplus, mutual funds and retirement accounts. These liquid assets do not include real estate or college savings funds like 529s.
The reason BodesWell chooses to exclude these retirement assets is that we want to proactively warn you that in order to afford a particular type of expense pattern in retirement, you may have to sell your home or liquidate your college savings account. You could always do that yourself in your plan with a Windfall event, but we didn't want to assume you would do that automatically.
Of course, there are lots of things you can do to get rid of the Danger Bar. You can Reduce Expenses, get a Promotion, get a New Job, or you can remove or reduce some life events. At the end of the day, BodesWell uses a Danger Bar as a tool to let you know when your plan is off track, and when you have adjusted it to get you back on track.