gatorbait Wrote: ------------------------------------------------------- > Jscott24 Wrote: > -------------------------------------------------- > ----- > > bosjcm Wrote: > > > -------------------------------------------------- > > > ----- > > > I had the required distribution as 45,000. > > > > > > 45,000 / 1,000,000 = .045 > > > > > > 1.045 * 1.04 = 1.0868 - 1 = .0868 > > > > > > 8.68% / .8 = 10.85% > > > > > > Anyone else? The fact that the portfolio had > > > inflation indexed securities doesn’t change > the > > > returns requirement. > > > > > > > > now we’re talking - that sounds right > > > same same
lxwqh Wrote: ------------------------------------------------------- > gatorbait Wrote: > -------------------------------------------------- > ----- > > Jscott24 Wrote: > > > -------------------------------------------------- > > > ----- > > > bosjcm Wrote: > > > > > > > I had the required distribution as 45,000. > > > > > > > > 45,000 / 1,000,000 = .045 > > > > > > > > 1.045 * 1.04 = 1.0868 - 1 = .0868 > > > > > > > > 8.68% / .8 = 10.85% > > > > > > > > Anyone else? The fact that the portfolio > had > > > > inflation indexed securities doesn’t change > > the > > > > returns requirement. > > > > > > > > > > > > now we’re talking - that sounds right > > > > > > same > > same same
mcpass Wrote: ------------------------------------------------------- > Wasn’t the asset base 1,000,000 minus 100,000 for > the mortgage is 900,000 for the return > requirement? > > That’s what my memory tells me. it was 1,100,000
I had 4.5% as well. If you had 10% then they would need to earn $100,000 to fund a $45,000 shortfall and that is too much. If you took $20,00 tax from the $100,000 you are left with $80,000 with really means that $35,000 is to compensate for 4% inflation. That is way too much. I actually had to worked this exercise during the exam and to see whether or not to include the inflation but looking back, in 2004 exam they did not add the inflation and only adjusted for tax.
i see the point about inflation, but i think the statement of money coming in, and going out was exactly for the first year of retirement, so inflation should’ve been included in the table. So, hte shortfall was 45k before taxes. 45/0.8=56.25 or something. Base was 1mm. 56.25k/1mm+4% was what i picked.
chip Wrote: ------------------------------------------------------- > I had 4.5% as well. > > If you had 10% then they would need to earn > $100,000 to fund a $45,000 shortfall and that is > too much. If you took $20,00 tax from the $100,000 > you are left with $80,000 with really means that > $35,000 is to compensate for 4% inflation. That is > way too much. > > I actually had to worked this exercise during the > exam and to see whether or not to include the > inflation but looking back, in 2004 exam they did > not add the inflation and only adjusted for tax. Inflation was 4% and to keep real value of the portfolio, the return should be 4 percent of $1,000,000. So how can $35,000 be too much?
The question clearly said the only taxes due were on distributions from the account, not on growth. So, shouldn’t you figure out net amount needed to withdraw from the portfolio, mulitply that by 1+tax rate (1.20), and then take total expenses being funded by the portfolio and divide by the asset base, and then add inflation after that. I know I messed up some of the numbers, but I think my process is right.
9,84 - for sure. 1. After tax 2. Before tax 3. Nominal return that’s right order
Unfortunatly I see your point. Hopefully they mark the calculations I crossed out. Fat chance.
125 - 80 = 45
I thought you had to gross up the mortgage amount due to taxes triggered from portfolio distributions. But an earlier poster mentioned the question explicitly said the 100K for the mortgage included the taxes. Other than that I have the exam same steps as you. Anyone else confirm the question said the 100K mortgage disbursement included the applicable taxes?
I left out the mortgage??? I so do not remember there being a sentence about a mortgage! After Tax return does not have to be grossed up – Thats why its an after tax return – IE we need 4.5% After tax return – You gross up for pre tax return. You did need to include inflation – I was something like 45k / 1.1MM (because I left out mortgage) = something like 4.6 x 1.04 = 8.785 is the real after tax return that you need.
I think only the expenses are adjusted for inflation, because they occured in year 0 and needed to be adjusted for the first year. The pension income was stated for the first year of retirement so that would not have been adjusted for inflation. so outflow would have been 50 not 45.
mhannebert Wrote: ------------------------------------------------------- > MH > 45 * 1.04 = 46.8 year Actually, no. The 45 was already based on next year’s estimation by the financial advisor. so, (.045+.04)/.8 = 10.625% arithmetic or ((1.045*1.04)-1)/.8 = 10.85% geometric
you sure they didnt say it was current living expenses?
I could’ve swore my question was after tax
BLOU23 Wrote: ------------------------------------------------------- > you sure they didnt say it was current living > expenses? I remember the table stating figures were for 1st year of retirement or 2010. Which would make sense because the income was pension income, which you would not receive unless you were retired… My memory could be bad, but that’s what I remember reading.
exactly. so you would have applied inflation to the salary. = 130 -> 50 outflow + infl div by 1 - tax rate = 11.5 (if compouded)
BLOU23 Wrote: ------------------------------------------------------- > exactly. so you would have applied inflation to > the salary. = 130 - 80 = 50 > > 5% + 4 infl div by 1 - tax rate = 11.5% (if > compouded) living expenses were 125 on my question, not 130.
current, but they will grow w/ inflation. so have to factor in for next yr