Understanding the Mathematics of Personal Finance

A BENCHMARK SAVINGS PLAN

In order to understand the advantages (and possible pitfalls) of a fixed annuity, it’s useful to compare the annuity to a personal savings plan. The spreadsheet on my website Ch11FixedAnnuities. xls will help with these calculations. Go to the IAWPC tab (I ’ Il explain this mysterious acronym soon). This example is shown in Table 11.1 .

In this spreadsheet, I chose a starting month as month #1 so that the month number and the number of months gone by would be the same. The spreadsheet fixes the starting year at 1; I did this because we we’re looking at years into the plan rather than actual dates.

I want to receive a payment of $2,500 each month, for 20 years, from this account. The annual percentage rate (APR) is 4.0%. My tax rate is 25%.

The calculated principal is $413,930 (top of column H). This is the amount that I have to deposit so that this account can fund my $2,500 monthly withdrawals for 20 years. Each month, the balance accrues interest. This interest will help to fund the plan. When I’m earning interest, I suddenly have a partner in this enterprise—the IRS. Savings bank interest is taxable. Each year, in month 4 (April), I have to pay income taxes.

With the tax rate entry set to 25%, the spreadsheet shows that in April of year 2, I must mail off $4,052 tax payment on this interest.[29] The tax bill column (column

K) shows all the tax bills for the 20 years of the plan, and the PV column (column

L) shows the present value of these bills reflected back to day 1.

For this example, the present value of the taxes is $37,322 (see the top of column L). You’ll need this much available to pay for your taxes if you want this plan to be adequately funded to give you $2,500 a month for 20 years.

Having to take federal income tax into consideration forced an increase of $37,322 in principal. Now let’s see if there’s a way of saving some of this money.

Добавить комментарий

Understanding the Mathematics of Personal Finance

PAYING OFF A LOAN VERY SLOWLY

This section uses a little math, but I’ll go through it slowly in small steps. As with the previous section, this section is not necessary if you don’t want to …

Taxation and Inflation

John Lennon once said, “Life is what happens to you while you’re busy making other plans.” Both taxation and inflation, it seems, are parts of life—they happen to you while …

PARI-MUTUEL BETTING

The pari-mutuel machine system used at race tracks offers a different approach to gambling. A roulette wheel owner is never sure what his or her daily operating cost will be; …

Как с нами связаться:

Украина:
г.Александрия
тел./факс +38 05235  77193 Бухгалтерия
+38 050 512 11 94 — гл. инженер-менеджер (продажи всего оборудования)

+38 050 457 13 30 — Рашид - продажи новинок
e-mail: msd@msd.com.ua
Схема проезда к производственному офису:
Схема проезда к МСД

Партнеры МСД

Контакты для заказов шлакоблочного оборудования:

+38 096 992 9559 Инна (вайбер, вацап, телеграм)
Эл. почта: inna@msd.com.ua

За услуги или товары возможен прием платежей Онпай: Платежи ОнПай