# Monitoring and trading (V6 R40 P107) Claire Wisman IPS

1. If retirement living expenses will be 257,000

2. If your PTFL will grow at an after-tax rate that of 4.9% (20 yrs), ending with 3,928,000

3. why do they say that with the ‘usual’ 7% before-tax rate, the PTFL value at retirement (3,928,000) should be adequate to meet ongoing spending needs then (\$257,000/\$3,928,000 = 6.5% spending rate)

To what are they comparing this 6.5% spending rate? They will need an after-tax rate of 6.5%?

Don’t know what am I missing once again…

— (text CFAI) —

If the portfolio earns total return of 7 percent annually, the value at retirement (\$3.93 million) should be adequate to meet ongoing spending needs then (\$257,000/\$3,928,000 = 6.5 percent spending rate)

(Level III 2012 Volume 6 Portfolio: Execution, Evaluation and Attribution, and Global Investment Performance Standards, 5th Edition. Pearson Learning Solutions p. 107).

guys, I really need your help on this one… it’s driving me nuts

1. if the portfolio will earn 4.9% after-tax (totalling 3,928,000), why do they say that with a spending rate of 6.5% (257,000/3,928,000), the value should be adequate to meet the needs?

Page 107. Vol 6. (monitor and rebalancing)

Pre-Retirment return after tax is 4.9% .

PMT = 0 I/Y=4.9 N=20 , CPT FV=3,928,000

At retirement she needs she needs 257,000 per year. on a base of 3928000

That is 6.5% per year entirely from the portfolio.

Portfolio earns 7% , so it will be adequate . They’re comparing 7% return from portfolio to 6.5% required rate.

( I don’t understand 1 thing though , after tax the portfolio will earn only 4.9% after capital gains and income taxes , so I don’t know how they assume the return will be 7% ,can someone please clarify ?)

I think they said that after deducting PV of children’s edu & home building cost PV portfolio = 1509,000. _ **Assumption** _ if it _ **continues** _ to grow at 7% (as in the last 2 years) or post tax 4.9% portfolio value will be 3,928,000

Than back calculation & calculating spending rate (confusing term i think - nothing but required return to keep the present living expenses). I may be wrong though

janakisri, 1st of all many thanks for your time…I want clair wisman dead or alive!!!

I know they are comparing the 7% before-tax return with the 6.5% spending rate, BUT I DON’T GET IT…

Actually the after tax value of the ptfl would be progressively depleted as you are spending every year 6.5% of it when the ptfl only grows at 4.9%…

how can this be adequate? (IS THIS A WORDING ENGLISH ISSUE FOR ME?)

More reasonable to me is the answer on page 114 for return requirement after clair fell in love…

The ptfl would earn a 6.3% after-tax and they would spend from it 6.47% every year…a bit more but it makes much more sense for me. However I gave up trying to understand why do they put it “SPENDING RATE BEFORE TAX OF 6.47%” when they are dealing with an after-tax ptfl value…

Guys, I had nightmares with this shit tonight…

anyone willing to save a candidate’s life…?