Retirement Concepts

1. The cost of saving – This table shows the cumulative value of 26 bi-weekly deferral amount over 20, 25 and 30 years, assuming a compound annual rate of 8% and a federal tax rate of 25%.

Deferral Actual Pay Annual Annual Pay Accumulation Accumulation Accumulation
 Per Pay  Reduction  Deferral  Reduction  20 Years  25 Years  30 Years
 $25.00  18.75  650  488  30,966  49,468  76,655
 $50.00  37.50  1,300  975  61,931  98,937  153,310
 $75.00  56.25  1,950  1,463  92,897  148,405  229,965
 $100.00  75.00  2,600  1,950  123,862  197,874  306,620
 $125.00  93.75  3,250  2,438  154,828  247,342  383,275
 $150.00  112.50  3,900  2,925  185,794  296,810  459,930
 $175.00  132.79  4,550  3,453  216,759  346,279  536,585
 $200.00  154.04  5,200  4,005  247,725  395,747  613,240
 $225.00  175.29  5,850  4,558  278,691  445,215  689,895
 $250.00  196.54  6,500  5,110  309,656  494,684  766,550
 $275.00  217.79  7,150  5,663  340,622  544,152  843,205
 $300.00  239.04  7,800  6,215  371,587  593,621  919,860

Rule of 72 – Is a simple mathematical formula which will determine how long it can take for your money to double.   Simply divide 72 by the rate of return.

Rate of Return/ 72

10%       =    7.2 yrs

8%         =    9.0 yrs

6%         =     12 yrs

4%          =     18 yrs

2. The Arithmetic of Loss – The chart below illustrates what percentage an account would need to return over time to get back the initial investment after experiencing a loss.

If the loss is Approximate total return needed over time to get back to the investment
-10% 11.11%
-15% 17.65%
-20% 25%
-25% 33.33%
-30% 42.86%
-35% 53.85%
-40% 66.67%
-45% 81.82%
-50% 100.00%

3. Average Return vs Actual Return

If you invest $1,000 into an account:

And decline -50% in year 1

And then increase +50% in year 2

The Average return is -50 + 50/2 = 0/2 = 0   

Is the ending value of the account $1,000?

No, the average return is Zero but the Actual return is -25%

If you invest $1,000 and it drops by -50%, you have $500.00

Now, if the account has a positive 50%, it would increase to $750.00

At the end of two years, even though the average return is zero percent, the account actually experienced a 25% decrease.

Actual and Average return will never equal one another anytime you factor in a negative number.

4. Currently taxable return – How much would you have to earn on a currently taxable return?

A Return on a Federal tax bracket:  You Would Have to Earn the Return Below You would have to earn the return below  You Would Have to Earn the Return Below
non-taxable investment 15% 25% 28% 35%
8% 9.41% 10.67% 11.11% 12.31%
7.50% 8.82% 10% 10.42% 11.54%
7% 8.24% 9.33% 9.72% 10.77%
6.50% 7.65% 8.67% 9.03% 10%
6% 7.06% 8% 8.33% 9.23%
5.50% 6.47% 7.33% 7.64% 8.46%
5% 5.88% 6.67% 6.94% 7.69%
4.50% 5.29% 6% 6.25% 6.92%
4% 4.71% 5.33% 5.56% 6.15%
3.50% 4.12% 4.67% 4.86% 5.38%
3% 3.53% 4% 4.17% 4.62%