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These are all forms of Net Present Value calculations, including the
annuity that he would enjoy from the portfolio (#3).
1.Year 1 he has portfolio and savings to try to get the needed $1,250
which is not provided by Social Security:
Note that savings build through year 4. Also, that we stay above
$12,000 balance there through year 7 – then the portfolio withdrawals
have to start.
In the end, he still has $30,000 of his portfolio and all of the
savings – but inflation’s going to pretty well eliminate the
portfolio
in year 21.
2.Here’s a scenario where we need to know what he can spend without
touching the $180,000 in principal and without touching the $12,000
in savings.
You can keep changing the number in cell B26 until you get there –
the
number is $12,019 – PLUS his inflation-indexed Social Security of
$9,000 = $21,019.
That in contrast to $24,000 per year above but says that reducing
monthly spending from $2,000 per month to about $1,752 will leave the
principal in his portfolio, his savings and his house investment in
place should Roadsie live beyond 90.
In Excel this is calculated with PMT function, the same function that
would be used to calculate a loan. In this case, it’s an annuity,
with money coming back each month to Mr. Roads:
PMT(rate,nper,pv,fv,type)
Rate: is the interest rate for the loan – and this has to match the
term (if monthly, then 0.75% or if yearly, then 9%)
Nper is the total number of payments for the loan, here 20 years
Pv is the present value or principal -- $180,000.
Fv is the future value, or a cash balance you want to attain after
the last payment is made. If fv is omitted, it is assumed to be 0
(zero), that is, the future value of a loan is 0.
Type is the number 0 (zero) or 1 and indicates when payments are
due. We’ll make sure that he has the money at the beginning of each
year, a 1.