Please don’t shout I’m sure this has been discussed before, but I can’t find anything searching through. When you’re calculating the return requirement when do you feel the need to add inflation onto the expenses - Schweser seems to do it randomly. i.e. Given expenses of $10, assets of $100, inflation of 2% (i) (1+ 10 * 1.02 / 100)*1.02 - 1 or (ii) (1+10/100)*1.02 -1 The book 1 exam 2am uses both methods for different questions. Is there some sort of rule?
should be 12% using simple addition.
Now that would be logical… This is a serious point though. Sometimes the inflation element is added twice if you like, sometimes it isn’t.
Depends. If Current year expense is say 100, and I’m going to retire in 1 year, then the next years expense will be 102, then we need to take that divide it by your asset base at beginning of retirement and then add inflation again.
formula # 2 get req ret then gross up for inflation and if necessary adjust for taxes