The way the software shows compounding of reinvested income is as follows:
At the end of the year, any positive after-tax cash (the last column on the Net After-Tax Cash Flow Spreadsheet) is moved into an account called the “Accumulated Savings” account.
Our goal with this Accumulated Savings account is to mimic the performance of a diversified portfolio of investments, into which the client would invest the positive after-tax cash.
The Accumulated Savings account automatically generates a current return (in different asset classes) and appreciation.
The asset classes are interest, tax-free, dividends, and capital gains.
The software has default rates of return for each of these categories, as well as a default appreciation rate.
You can see the rates by clicking to the Assumptions screen (on the Settings tab), and scrolling down to the section labeled Rates of Return and Borrowing Costs.
You may change these rates on this screen, as well.
These rates are saved on a case-by-case basis. If you change them for one case, those changes will not affect the next case.
This income appears in the column on the After-Tax Cash Flow Spreadsheet labeled “Income on Accum Svg” (Income on Accumulated Saving).
It will also appear on the Budget Report as investment income, and on the View/Edit Taxes reports, in the appropriate categories (interest, dividends, and capital gains).
For details on growth of and distributions from the Accumulated Savings, view the report labeled Accumulated Savings, on the Reports > More Reports screen.