Accumulation and Distribution Example
Contents
A 25 year old client spends $50 a week on coffee and a couple lunches. They might consider saving it for retirement but do not think it would be worth much. How much monthly income could $50 a week produce for 25 year old when they are 65?
Data Entry
Use the following values for the prompts:
Prompt |
Value |
|
Calculation Type |
Accum. & Dist |
|
Accumulation Values |
||
Current Account Value |
$0 |
|
Interest Rate |
6% |
|
Number of Years |
40 |
|
Type of Distribution |
Level Deposits |
|
Deposits per Year |
52 |
|
Deposit Amount |
$50 |
|
Distributions Made at |
End of Period |
|
Calculated Projected Value |
$414,103.81 |
|
Distribution Values |
||
Calculate |
Distribution Amount |
|
Interest Rate |
5% |
|
Number of Years |
30 |
|
Type of Distribution |
Level Withdrawals |
|
Distributions per Year |
12 |
|
Distributions Made at |
End of Period |
|
Future Value |
$0 |
|
Calculated Withdrawal Amount |
$2,194.98 |
In summary, with no lump sum deposit, the $50 per week of frill expenses at a relatively conservative rate of return can produce $2,194 of income per month in retirement--not a bad investment!
This example could easily be modified:
1.Include annual increasing the deposit by 2% to 3%;
2.Include a COLA of a similar value to the distribution time period; and
3.Changes to the accumulation and/or distribution time period.
Other assumptions could also be easily changed.
| Sales Idea | When working with young individuals, or groups of younger individuals, this powerful tool use to run an illustration for the younger people--the very people who are often less included to make contributions! |