How do I model Flexible Spending in Optimize?

Flexible Spending lets you project your spending to adjust automatically based on portfolio performance. It allows you to simulate realistic lifestyle changes during market ups and downs, so you can see how flexible spending decisions might affect your Chance of Success. For example, you may decrease spending on travel or entertainment during a market downturn while continuing to spend on insurance, taxes, and more.

Customize Your Spending Metric

You can customize which categories are included in your Spending metric by following these steps below:

1. In your Plan view, hover over the Spending metric on the right sidebar.
2. Click the gear icon to open Customize Metric.
3. Select which items to include, such as Tax Liability, Mortgage Payments, Mortgage Principal, or Consumer Debt Principal.

Rental property costs are always excluded from spending. For mixed-use (house hacking), the personal-use portion of eligible costs will be included.

Model Flexible Spending

First, let’s navigate to Flexible Spending, go to the top navigation row in your Plan (Plan, Cash Flow, etc.) and select Optimize > Flexible Spending.

Choose a Mode

Your first choice is None or Flexible.

• None: No flexible spending rules applied.
• Flexible: Dynamically adjusts discretionary spending based on portfolio performance. Set up rules that respond to market conditions, spending more when the market is high or tightening your belt when the market is down.

Set Rules and Time Range

After choosing Flexible, your default rule will be: “When performance is down 20%, flex discretionary spending decreases by 30%.” Click each number to adjust to your preferred percentage, or click the arrows to choose how you want your portfolio’s performance compared to previous all-time highs (ATH). When performance moves above or below those highs, your Flex rules determine how spending adjusts. It excludes contributions and withdrawals, so it reflects only market performance. You can add multiple rules.

You can also add a specific time range for flexible spending. If you do not add a time range, flex spending will apply throughout the entire plan. Similar to other aspects of ProjectionLab, you can choose your Start and End dates tied to a specific milestone or a specific month and year.

Configure Settings

Settings has two options:

• Scope: Choose All Spending, which includes flexing all spending except for taxes, debt payments, real asset insurance, and HOA fees, or Discretionary Spending, which will only flex your discretionary spending.
• Interpolation: Choose Step to apply rules only when a threshold is met, or Linear to interpolate between rules.

Below Settings, you’ll see a Preview Graph showing your Performance vs. ATH.

Analyze Results

The Flexible Spending view also includes a Spending Overview Graph by Year and Chance of Success.

• Pulse Check (lightning bolt icon): Runs 98 trials.
• Full Run (atom icon): Runs 196 trials.

After running, you’ll see a graph of your spending distribution and a table showing what percentage of Flex or No Flex spending results in one of 6 outcomes: Large Surplus, Comfortable, Barely Made It, Almost Made It, Failed in the Middle, or Failed Early. Hover over each outcome for its definition.

To start over, click the circular arrow in the top right to reset your Flexible Spending.