Description: The topic of the article centers on retirement calculator, in which the author shows you how to calculate and estimate your retirement fund using two simple methods, capital preservation and capital utilization. In the calculation, financial calculator HP10BII is used.
This is KCLau, today I’m going to talk about how to calculate retirement fund, this is a question posted by reader, his name is Alan, Alan asked me a couple of questions, first what is the amount of money that he needs to accumulate before he retire if he lived up to seventy-five years old and he’d like to have a tidy sum of Malaysian ringgit 8,000 per month for his expenditure?
The other question is same question as above except that he would like to retain the full cash value or the principal amount to his descendants when he passed on, we need some information, let’s assume Alan is thirty years old now, he said he’s going to retire at the age of 55.
According to his email, let’s assume he will live up to seventy-five, he already has some asset by EPF cash another type of investment, at the age of 55 he will need to complete a minimum retirement fund that will allow him to spend every month eight thousand until age 75.
You want to spend eight thousand per month for these 20 years of retirement during the time, before retiring he still has 25 years to go, this is amount he’s interested to know, the other question is if he wants to retain the principle, that means even though he spent eight thousand every month, some of the retirement money still retained.
You definitely need a higher amount on this, we’ll call this Y, Y is based on the capital preservation and X is based on what we call capital utilization, Y is very easy to calculate but X will be a bit tricky, for mathematic formula if you want to click Y, this is very simple.
But first we must know that this 8,000 per month is based on current value, now eight thousand it allows you to have a certain purchasing power but after 20 years at that time you have to calculate the inflation, you have to take into account of inflation, that means you will need a higher amount in order to have an eight thousand at this moment.
That’s very simple, if you use financial calculator, this is the famous HP 10B, let’s assume the inflation is 4%, a future value is seventeen thousand five hundred twenty eight, I’ll put 17,500 here, we have to also estimate the rate of return.
Real return is 10% a year, that means this Y amount is this capital of retirement fund, if you generate 10% a year, you’ll get 17,500 per month, if you times 12, you get the yearly amount which is 210,000 per annum, the Y amount is two point one million.
We get 210,000 every year to spend, so X amount will be a bit less than Y, but due to inflation the actual rate or return after you’re taking into inflation account, it has a complicated formula for this, but for simplicity we will take ten minus four, so the actual return may be six percent.
That means you can only use six percent of the return because you have to think four percent of it to account for the inflation, the PMT is the payment you have to use every year which is negative seventeen thousand five hundred times twelve, so it’s two hundred ten thousand.
It’s 20 years, future value will be zero, that means at this time you’ll finish future value, you deplete all the money after you utilize all the capital, we want to calculate the X amount, you use the financial calculator again, let’s input 20, your return is 6%, PMT is 210,000, make sure that you put a negative here, future value is zero, so you get the present value is 2.4 million.
You have X amount even higher than Y amount because for Y amount, we used a different rate of return, so if you use 6% here, you get the grand amount, now we didn’t take inflation into account, if we take 210,000 divided by 0.06, you get 3.5 million.
That’s how we calculate using financial calculator, you don’t have to learn about all these financial calculator’s stuff because I have a spreadsheet that can calculate, now this is the retirement calculator spreadsheet using Excel, we input Alan’s current age 30.
Retirement age is 55, number of years from now is 25, desired annual retirement income at present value equals to 8 thousand times travel, it’s ninety six thousand, expected inflation rate is 4%, so desired annual retirement income is two hundred fifty five thousand of this adjustable inflation.
Years in retirement is 20 years, expected annual rate of investments is 10%, when we calculated before, I shouldn’t use 20 years over here, I should use 25 years, that’s the fun part of vision, we’ll have the correct calculation, so it’s 2.6 million, this is three point six, it is near to the calculation.
If you want to have a copy of this retirement calculator, I only provided to the members of math courses money automation system costs, to know more about this course you can go to this money automation system.com, you can download a free report.
If you want to join, click on content, you are joining over here, currently the course is sold on a 228, click add to shopping cart, you’ll be able to pay using your credit card through PayPal, it’s 228 one-time payment or you can transfer money to my moving account, I will create the joint account, that’s all, please visit our website, thanks.