You can't spend over your lifetime more than you have. Your lifetime balance sheet reflects this point. It shows that your lifetime spending or outlays (the right-hand-side of the balance sheet) equals your lifetime income and resources. All amounts are presented as present values. Present values tell us what an annual stream of dollars paid or received in the future are worth today (in the present).
Your lifetime resources comprise the total present value of receipts from annual labor earnings, Social Security benefits, pensions, annuities, retirement account withdrawals, special receipts, current regular assets as well as resources available from income that is in excess of your safe rate of return and housing-related resources.
Your lifetime spending comprises the total lifetime present value outlays on annual housing expenditures, bequests, special expenses, taxes, retirement account contributions, Medicare Part B premiums, life insurance premiums, and discretionary spending.
Our software determines your annual discretionary spending to ensure the smoothest possible living standard of household members through time. In deciding what you should spend on a discretionary basis each year, we take into account your family composition, but also the cash constraints that your household faces. Most importantly, however, we incorporate your discretionary spending capacity--the fact that your lifetime discretionary spending plus your lifetime fixed spending, on housing, etc., cannot exceed your lifetime income.
Excess asset income is the amount of asset income (namely, income on reserve funds, 529 funds, and retirement accounts) over and above the safe rate of return. If the asset’s rate of return is lower than the safe rate of return, this value will be negative and can be thought of as an opportunity cost. If the asset’s rate of return is higher than the safe rate of return, this value will be positive and can be thought of as an opportunity gain.
Housing and real estate holding cost is the opportunity cost of tying up your money in housing or real estate rather than investing in safe assets, minus the appreciation of the housing and/or real estate.
Housing/Real Estate Equity Bequest is the present value of the housing bequest.
Housing/Real Estate Expenses is the present value of the property tax, insurance, maintenance and utilities, and mortgage or rent.