Challenge for S2000

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nospe690

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You are by far the forum’s expert on return requirement and how to account for tax and inflation.
I’m wondering if you will get the same answer as BSAS. Here are the deets, supposed to solve for pre-tax return objective:
This is a taxable investment portfolio currently worth: 240
Spending Requirement during first year of retirement: 15
Private Pensions provide: 6 annually, adjusted for inflation
First withdrawal will occur immediately
Tax rate: 30%
What is the return?
Bonus q: why on the 2010 AM q1 is the time to retirement 25 years, shouldnt it be 26 years (shes 34 and plans to retire at age 60)
If you would help me, you would possibly prevent a heart attack and I would REALLY appreciate it!
 
Bonus q: why on the 2010 AM q1 is the time to retirement 25 years, shouldnt it be 26 years (shes 34 and plans to retire at age 60)
she is 34 now - you are doing everything wrt end of this year - so will be 35 when that happens.
13/240 = 5.42% ?
 
Pre-Tax return or after tax return ? Do expenses grow with inflation ?
Are these two questions not even important ?
 
nospe690 wrote:You are by far the forum’s expert on return requirement and how to account for tax and inflation.
I’m wondering if you will get the same answer as BSAS. Here are the deets, supposed to solve for pre-tax return objective:
This is a taxable investment portfolio currently worth: 240
Spending Requirement during first year of retirement: 15
Private Pensions provide: 6 annually, adjusted for inflation
First withdrawal will occur immediately
Tax rate: 30%
What is the return?
Click to expand...
What’s the inflation rate?
nospe690 wrote:Bonus q: why on the 2010 AM q1 is the time to retirement 25 years, shouldnt it be 26 years (shes 34 and plans to retire at age 60)
Click to expand...
Sounds line 26 years to me.
nospe690 wrote:If you would help me, you would possibly prevent a heart attack and I would REALLY appreciate it!
Click to expand...
Physicians charge big bucks to prevent heart attacks.
 
Bonus q: Is that the assumption for every problem we see? Because I don’t necessarily see what specifically in the problem indicates that.
5.42% is not correct, first step is you remove (15-6) from the investable base….
thanks cp
 
nevermind im stupid, it says it is a year later in the question for the bonus q
 
nospe690 wrote:Bonus q: Is that the assumption for every problem we see? Because I don’t necessarily see what specifically in the problem indicates that.
5.42% is not correct, first step is you remove (15-6) from the investable base….
thanks cp
Click to expand...
You’re spoiling this for me.
(I did realize that I’d be removing that amount, by the way.)
Note, too, that CPK123’s comment about the time period for the bonus question is a good one: end of year.
 
this gentlemen confused me with his bonus questions.
can you break this down please?
how did u come up with 13/240
is it simply taking 9 and then dividing by 0.7?
if withdrwal was immediate, wouldnt it dent the starting value of 240 for the portfolio?
 
Yes, you need to spend 15, but it’s offset by 6. The pension distributions are post-tax so everything is a clean post-tax number. Add inflation if necessary.
 
gotcha. thank u!
the guy did some serious rounding though. the answer should be 5.35%
what does the he makes his first withdrawl immediately have to do in this question?
 
michaelwcao wrote:Is it not:
[ (15-6) / 240 ] / (1 - 0.3) = 5.36%?
Click to expand...
No:
nospe690 wrote:First withdrawal will occur immediately
Click to expand...
(15 – 6) / (240 – (15 – 6)) = 3.90%, real, after-tax.
3.90% / (1 – 0.3) = 5.57%, real, before-tax.
Once I have the inflation rate, I can compute the nominal, before-tax, required return.
 
thats what Im talking about. the guy didnt give enough details.
Magician- if its jan1 , we dont get that pension payment till dec 31 (does it mention that he is getting that pension payment right away too) and if thats the case the next pension payment will be inflation indexed while we dont know what happens to the expenses.
I’d have guessed
(15 – 6) / (240 – (15))
 
S2000magician wrote:
michaelwcao wrote:Is it not:
[ (15-6) / 240 ] / (1 - 0.3) = 5.36%?
Click to expand...
No:
nospe690 wrote:First withdrawal will occur immediately
Click to expand...
(15 – 6) / (240 – (15 – 6)) = 3.90%, real, after-tax.
3.90% / (1 – 0.3) = 5.57%, real, before-tax.
Once I have the inflation rate, I can compute the nominal, before-tax, required return.
Click to expand...
Why are you reducing your portfolio by the spending amount & pension distribution? Also, the pension distribution is separate from portfolio, no?
 
The way I see it:
You start with 240, and imediately need to reduce by 15 of which 6 you will receive.
Now you only have 231 base for investing. You need 9K next year / 231 = 3.90%
 
Matori wrote:
The way I see it:
You start with 240, and imediately need to reduce by 15 of which 6 you will receive.
Now you only have 231 base for investing. You need 9K next year / 231 = 3.90%
Click to expand...
But why are we assuming they are the all the same and one account? It states the portfolio is taxable, pensions are not. I read this as if the pensions were supplemental income.
 
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