Required return

I’m really struggling with the return requirement. For example, Susan Farifax case (example # 1, reading 8), she needs to maintain her lifestyle and we calculate 658,000 i.e (500,000 * 1.047). This is the nominal before tax requirement, 7 years from now. That is 658,000 7 years from now is the same is 500,000 now and this is what we want.

Now, to calculate the investable base, we take her 2 million and shouldn’t we compound it to get the nominal before tax number of 10.8? In the curriculum it’s using 7%.

On a broader level, do you guys have any tips for making sure that we get the numbers right? That is real or nominal, after or before tax?


Unless specifically mentioned do NOT grow the asset base. Take it as given in the table.

More often then not, expenses will be the previous year, make sure to grow by inflation

If it is post tax nominal, calculate the short fall return post tax & add inflation

If it is Pre tax nominal, STILL CALCULATE SHORT FALL POST TAX. Then add inflation, then divide by (1-t)

If you are given a goal to reach a portfolio value say 2m at a certain time period then we use TVM functions setting FV to the future value, PV = to the asset base. PMT (POSITIVE if you are WITHDRAWING, NEGATIVE if you are NET SAVING)

Thanks…on the last point, if it says you want to reach a portfolio value of 2mn, do we assume that to be a real number or nominal number?

It’s nominal unless they specify that it’s real.

Ok, got it. So for the most part, we should increase only the expenses by inflation and not do anything with the portfolio base (except for compounding it for after-tax annual returns)?

Any insights from the example in the curriculum (fairfax blue box)?