Retirement Income Question
I am new to ESPlanner and am starting with the Basic program (what a great tool). When I go to the "Annual Details" screen, the "Retirements Account" tab, the "Income" column, the amounts there do not make sense to me. I thought that column should be equal to the total retirement account value muntiplied by the percent "rate of return" entered for retirement accounts. However, it does not, the amount shown is much less - even the entry for the current year. This income is not taxed (until withdrawn) so I don't think that explains it. Can anyone help me understand this?
Thanks
RSS
Are you perhaps seeing an adjustment for inflation? What is your inflation set at in Assumptions? The amounts are reported in today's dollars so perhaps it's an adjustment to reflect today's dollars?
I don't recall exactly how the formula works, but I know, for example, that if you have inflation set at 3% and you are expecting 8% on your retirement assets, you'll see 15K on a balance of 324,000. That's the 8% adjusted for inflation which somehow comes to, not 5% as you might expect, but rather 4.63% which has to do with timing issues or something. Larry would have to explain.
Dan
For "large" time periods, the conversion of nominal to real interest rates is:
(1 + nominal interest rate) / (1 + inflation) = (1 + real interest rate)
Plugging 8% nominal into the above, you get 4.63% real.
Best,
Dick Munroe