Essay 2011 #2-A

Any thoughts as to why question asks for after tax rate of return, but seems to provide the before tax return. Considering the couple plans to live off income from investments and investment income seems to be taxed at 20%, wouldn’t you divide .0482 by (1-.2), and then add inflation?

dont have in front of me - but don’t they provide after tax income and expenses alread (reduced by tax)

Not to my knowledge. I may be reading it incorrectly but I see living expense and asset base. Asset base must grow at some rate to meet living expense. Income from investments is taxed at 20%.

I also found it strange also.

I think it’s the first line in the 3rd paragraph. “combined after-tax salary $$$, current year living expenses, etc.”

The “combined after-tax” part of the sentence applies not only to the salary but the expenses and mortgage as well.

Would the 3rd paragraph also apply to investment income on income that does not yet exist? I could understand if the question said expected income on invstments were xyz, but I don’t see anything that alludes to this.