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% |