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Your new customers, Joe and Annie Jordan, ask this question: "Together, we have $ 1,000,000 for our 401 (k) and we want to know how much post-tax cash flow we can get from retirement – how much is $ 1,000,000 going to retirement?"
Joe and Annie need to provide more information so you can answer that question realistically:
- Current age: Both are 60 years old.
- Retirement age: 70
- Years of retirement: 25
- Inflation assumption: 2.00%
- 401 (k) Yield: 7.00%
- Adoption of tax code: They expect to remain in a 35% federal and state combined tax code throughout the analysis.
Using InsMarks Contribution-oriented pension plan calculatorThe results of this review are below.
|Cash flow after taxes|
|($ 1,000,000 401 (k) assets)|
|Annual return: 7.00%|
Click here to see the annual reports from Figure 1. As you can see in column (4) on page 2, the after-tax cash flow generated in the first year of retirement amounted to $ 77,587. The 2.00% COLA gradually increases this number to $ 124,818 over 30 years. Result: The COLA provides annual purchasing power of $ 77,587 per annum (assuming an inflation rate of 2.00%, as does the COLA).
Let's change that by changing the income assumption to random percentages between 24.00% and -10.00%, which average 7.00% over the 35 years between 60 and 95 years.
|Cash flow after taxes|
|($ 1,000,000 401 (k) assets)|
|Random returns: average 7.00%|
Click here to view the annual reports from Figure 2. As you can see in column (4) on page 2, the after-tax cash flow generated in the first year of retirement amounted to $ 80,912. The 2.00% COLA gradually increases that number to $ 130,169 over 30 years. Result: The COLA provides the annual purchasing power of $ 80,912 per annum year (assuming an inflation rate of 2.00%, as does the COLA).
In Part 2 (scheduled for December 2019), we will continue the pension valuation for Joe and Annie Jordan, taking into account all assets and benefits.
Click here to view all available calculators on the InsCalc tab of the InsMark Illustration System. They are available for taxable, tax-exempt, tax-deferred, equity, IRA and Roth IRA accounts. Each of them has a logic similar to that of Contribution-oriented pension plan calculator is used for the 401 (k) rating in this blog. They all enable you to generate random returns and growth between high and low percentages, as done for Figure 2 above, which results in a more realistic outcome of returns.
Be sure to read the Guide to the Digital Workbook File for Blog # 197 Below is a guide to the data used for this blog.
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Digital workbook files for this blog
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Important note 1: The hypothetical values referenced in this blog assume the non-guaranteed values displayed in all years. This is unlikely and the actual results may be more or less favorable.
Important note no. 2: The information in this blog is for educational purposes only. In any case, the approval of the client's legal and tax advisers regarding the implementation or modification of planning techniques and the applicability and consequences of new cases, decisions or laws for existing or upcoming plans must be ensured.
Blog # 196: CheckMate® Logic (Part 4 of 4) The Influence of Present Value Life Insurance on Pensions
Blog # 195: CheckMate® Logic (Part 3 of 4) Religion, Politics, Sex and Risk Insurance
Blog # 194: CheckMate® Logic (Part 2 of 4) Measuring the value of a permanent life insurance policy
Blog No. 193 CheckMate® Logic (Part 1 of 4) When a customer postpones the purchase of a policy
Blog # 192: 401 (k) Look-Alike Meets the Computational Dynamics of Wealthy and Wise® (Part 2 of 2)
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