Costs

Costs are the expenses of a specific asset or account that must be met each year. Costs can be specified before and during retirement. Before retirement, the sum of all costs becomes the year's only expense amount. During retirement, the sum of all costs plus the plan's required retirement living expense becomes the year's total expense amount.

Each year, when all pension plus other income, and the specified and required withdrawals do not provide enough funds for the total retirement expense amount (including costs), then additional funds will be withdrawn from eligible accounts to make up the shortfall. The accounts will be accessed in either a default or assigned sequence as specified by you.

After the shortfall collection has enough money to cover the year's expenses, then funds for each specified cost amount are removed from the expense fund collection and placed in to the account with the cost. The reminder covers the retirement living expense, when it is required after retirement.

If costs are specified before retirement, then there is no retirement living expense. All funds collected for the expense shortfall are for the costs. So in this case, money flows from the eligible accounts to the accounts with the cost instructions.

This is different than specifying a deposit instruction to place money in the account. A deposit amount comes from outside the plan and is a net addition to the plan's accounts. But a cost amount must be obtained from the plan's current resources. A cost instruction increases the plan's yearly expense requirement in order to obtain the amount from the available funds.

It is also different than specifying a transfer instruction to place money in the account. A transfer instruction moves money from one account to another without first collecting it in the pool of money for expenses. A transfer instruction could supply the money needed for the cost, but it would always get the money from the same source account. A cost instruction, by increasing the amount collected for the pool of money for expenses, gets the money from different available sources.

You can specify multiple cost instructions to handle varied situations concerning the same account. For example a vacation fund can be specified as an account that has several different cost instructions for different amounts and durations. Set up an account for the vacation fund, specifying that the total balance is used up yearly, and specify a cost instruction equal to the yearly expense.

You can specify that a cost instruction be active only periodically, skipping years, by specifying a yearly cycle parameter. The cost instruction will be active once each cycle, beginning with the start year.

Normally, a cost instruction amount is fixed, as for example for a series of mortgage payments. But a cost instruction can be indexed on an annual basis to keep pace with inflation.