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Personal finance quiz: 9/21/2015 16:34:04

The Final, Forbidden Knowledge
Level 56
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The average rate of yearly inflation rate in the USA is 3.22%.

Your first job: calculate the amount of money you spend per day on average. That'll involve monthly bills + food + gas money + any other regular costs.

Now, calculate your life expectancy. This can be done here, http://gosset.wharton.upenn.edu/mortality/perl/CalcForm.html.

Let's assume you get extremely lucky and open a savings account with an annual return of 1% growth per year. Query: how much money would this savings account need on year 1 (today, if you start the account today) to beat inflation by the time you retire/die/reach a certain age? Since everyone's life is different in terms of daily spending, our numbers will vary somewhat.

Edited 9/21/2015 16:38:40
Personal finance quiz: 9/21/2015 16:51:33

Pink
Level 60
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how can it say im supposed to live til 8? im likely to kill myself much before of that....
Personal finance quiz: 9/21/2015 17:00:50

Darklordio
Level 56
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Rotate your money in high interest current accounts for interest between 3-5%
Personal finance quiz: 9/21/2015 17:00:54

The Final, Forbidden Knowledge
Level 56
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I have just designed a spreadsheet that calculates the answer to this question, assuming I live another 57 years.

It tells me I need to save more \$\$\$\$ :/
Personal finance quiz: 9/21/2015 17:20:19

Coronel Gavilan
Level 57
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could you give us a formula or an example??
Personal finance quiz: 9/21/2015 18:01:54

shyb
Level 59
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you are not factoring in the coming apocalypse. spend every penny as soon as you get it, preferably on consumables. enjoy life while you still can.
Personal finance quiz: 9/21/2015 18:10:58

The Final, Forbidden Knowledge
Level 56
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Here's the spreadsheet I've set up. Since I'm not actually sure how much is in my savings account, and will have to check later this week, I've used the number of coins I have on Warlight as my 'savings'. So, if I invest my \$0.65 and earn 1% interest each year, by the time I'm expected to die I will own \$1.09. Lovely. Meanwhile, this year I will spend an average of \$29 per day, much of it going to bills. By the time I'm expected to die, I would be spending \$172 per day.

My 'savings' today will literally be spent in a matter of minutes. Gotta love math for its brutal honesty

Edited 9/21/2015 18:11:34
Personal finance quiz: 9/21/2015 20:02:13

Genghis
Level 54
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I kept all my golden dollars. Yes i know that keeping money and not spending it ruins the purpose, but the next guy would do the same thing and keep the gold dollar.
Personal finance quiz: 9/22/2015 15:22:52

Level 63
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So is this telling me I'm gonna die at 53, or that I have 53 years longer to live?
Personal finance quiz: 9/22/2015 16:16:52

The Final, Forbidden Knowledge
Level 56
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Pretty sure it's telling you that you will die at 53. But I could be wrong.
Personal finance quiz: 9/22/2015 17:59:37

[NL] Lucas
Level 59
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The test does not work. It says that I probably won't get older than 93 years. In the Netherlands the life expectancy in 2100 will be more than 100 years.
Personal finance quiz: 9/22/2015 19:10:30

[REGL] Pooh
Level 60
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So, here's a different take because I'm not sure if I did what you wanted when I followed your instructions.

What I did.
1) Determine life expectancy. (Link in OP)
2) Calculate number of years until I'm at Life Expectancy. (Life Expectancy - Age)
3) Enter in my Year 1 annual spend, calculate an annual spend increased by inflation of 3.22% for each year I'll be alive.
4) Make a Savings Column with a 0 in the year 1 column.
5) In year 2, increase the value of savings from previous year by 1% (Savings Rate) and subtract what I spent in Year 1.
6) Run Goal Seek, setting my last year saving value to 0 by changing the year 1 value (initially set at 0).

I need to have 6.4 Million USD in the bank to have a \$0 balance when I die, having spent 9.3 Million for the rest of my life.

Next thing to do....
Assume I'll retire at 65, die at predicted range. How much money do I need to have saved at age 65 to have \$0 when I die. So many other variables though....
Personal finance quiz: 9/22/2015 19:32:51

[REGL] Pooh
Level 60
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Okay... that didn't take as long as I thought...

1) I took my annual spend at age 65 and locked it in, and set all the years before that to 0.
This means that I spend what I earn for the next 30ish years, saving nothing.
2) I run the same analysis again, goal-seeking the Year 1 savings value to make savings =0 at death.
This calculates my nest egg that I would need to have now, let it grow while I work, then live off of that...

I need a \$3.7M nest egg now.

Another scenario... Assume I contribute \$1k/year to the savings each year increasing by inflation, earn 4% while working, 1% while retired...

I need \$1.7M in savings.

Same as above, but increase my initial annual savings to \$10000

I now need \$1.5M in savings... (I would have thought that this would have went down some more for a 10x increase!)

Same as above, but if I were to die 5 years sooner.... I would need \$1.0M saved now.

Same as above, but I live 5 years later... I would need \$2.0M saved now.

Now, assuming I die at the time I die, get 8% on my savings while working and 2% while retired, initially contribute \$1k/yr to savings... I would need \$558k saved now.

In conclusion, its amazing how little changes in interest rates, saving rates, and time you die can effect if you are living in a pauper's grave or not after you're dead.
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