Hi,
I've run a profile where I was liquidity constrained when my indebtedness limit was zero. When I added $100k indebtedness limit my consumption constrain disappeared. However, I don't see where the indebtedness is being paid back? How does the program handle loans that are made to smooth consumption? Is the amount of the loan shown in a report?
Thanks
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If I recall correctly, it shows up as negative regular assets. We don't assume there is a load associated with the debt. ESPlanner will usually increase your life insurance in order to pay things back should you die in the short term (before you have gotten above water with your regular assets). In effect, ESPlanner uses your additional savings stream to "repay" the loan.
Best,
Dick Munroe
Dick,
I'm still confused. I have no regular assets (non-IRA $) so there is nothing to payback to loan. From a annual cash flow prospective, funds have to be allocated to reduce the loan. Do I have to determine what portion of my "consumption" has to be allocated to loan payback? That's OK but I need to determine how much of a loan the program assumed and how often it funded consumption smoothing with loans. Can this be determined using the data in the "Regular Assets" column?
Thanks
James
Hi James,
I'm repeating your question and reply to it right below. best, Larry
"I've run a profile where I was liquidity constrained when my indebtedness limit was zero. When I added $100k indebtedness limit my consumption constrain disappeared. However, I don't see where the indebtedness is being paid back? How does the program handle loans that are made to smooth consumption? Is the amount of the loan shown in a report?"
If you look at your regular asset report you'll see that your regular assets ultimately go from negative to at least zero if not a positive value. Positive values of saving explains this. This saving can be thought of as paying off your debt.
If this isn't clear, please call me at 617 834-2148.