Calculations for Olga’s retirement planning - Option 1: minimizng life insurance expenses and protection

Since she is in very good health, Olga can buy a 10 year term policy with $400,000 face amount for $326 a year. It means, that she can invest almost all the money she can afford not to use for everyday expenses into registered investments, where she can earn interest in a tax-deferred way.

 

Year   Age     Avail. for| Cost of|Investm.|From last|Total

               ins.&inv. | insur. |       | year

 1     42       9000      326       8674   60000    68674


Olga adds almost all the $9000 designated to be used for insurance&investment to the $60000 she has already saved.

 2     43       9270      326       8944   74855    83799


In year 2, she can add even more to her savings, since she indexed the designated amount by the 3% inflation, but her insurance premium is a fixed amount for 10 years. The total of 68674 last year earned interest at 9%, that's how the number 74855 resulted. Therefore, in the third year, it is 83799 (74,855+8,944) she can earn interest on. The same procedure is repeated in the next 8 years...

 3     44       9548      326       9222   91341  100563

 4     45       9835      326       9509   109613  119122

 5     46     10130      326       9804   129843  139646

 6     47     10433      326       10107   152215  162322

 7     48     10746      326       10420   176931  187351

 8     49     11069      326       10743   204213  214956

 9     50     11401      326       11075   234302  245377

10     51     11743      326       11417   267461  278878


... when she gives up insurance altogether. From that point, all the designated amount goes to registered investments, ...

11     52     12095                12095   303977  316072

12     53     12458                12458   344519  356977

13     54     12832                12832   389105  401936

14     55     13217                13217   438111  451327

15     56     13613                13613   491947  505560

16     57     14022                14022   551061  565082

17     58     14442                14442   615940  630382

18     59     14876                14876   687117  701992

19     60     15322                15322   765171  780493

20     61     15782                15782   850738  866519

21     62     16255                16255   944506  960761

22     63     16743                16743 1047230  1063972

23     64     17245                17245 1159730  1176975


... making her quite wealthy by retirement. From that point, we do not assume the continuation of the 9% growth. She is to withdraw money from the capital every year, starting with $69,075 in year 24, an amount with purchasing power of today's $35,000. It's important to note that she has to pay a tax of about 30%, if we project toady’s tax-rates, on that money.

24     65                         -69075 1247593  1178518

25     66                         -71147 1249229  1178082

26     67                         -73282 1248767  1175485

27     68                         -75480 1246014  1170534

28     69                         -77745 1240766  1163022

29     70                         -80077 1232803  1152726

30     71                         -82479 1221890  1139411

31     72                         -84954 1207775  1122822

32     73                         -87502 1190191  1102689

33     74                         -90127 1168850  1078723

34     75                         -92831 1143446  1050615

35     76                         -95616 1113652  1018036

36     77                         -98484 1079118  980634

37     78                         -101439 1039472  938033

38     79                         -104482   994315  889833

39     80                         -107617   943223  835606

40     81                         -110845   885743  774898

41     82                         -114170   821391  707221

42     83                         -117596   749654  632059

43     84                         -121123   669982  548859

44     85                         -124757   581790  457033

45     86                         -128500   484455  355955

46     87                         -132355   377313  244958

47     88                         -136325   259655  123330

48     89                         -140415   130729    -9686


The bad news is that even with the assumption of very favourable conditions, she is going to use all her savings by the age of 89.

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