This screen provides a graphical illustration of the growth of the investment and the decline of the hypothetical “present value of tax fund”. As the investment grows, it requires more and more taxes be paid from lifestyle. |
This screen illustrates graphically the growth of the investment and the consumption of the lump sum (present value of taxes). |
All compounding is performed annually. The present value of the taxes paid is calculated using the time value of money calculation for present value with the following variables: Rate: Net opportunity cost rate or return Period: Number of years in the projection FV: Cumulative opportunity cost of tax at the end of the projection Net opportunity cost rate of return = Investment rate of return * (1 - tax rate). [The investment rate net of taxes.]
The documentation calculation is performed in a worksheet defined as follows: Column 1: Annual Investment at the beginning of the year. Column 2: Account balance at the beginning of the year. Column 3: Annual interest earned: (Column 2 * Investment rate of return). Column 4: Account balance at the end of the year: (Column 2 + Column 3). Column 5: Annual taxes paid: (Column 3 * Assumed Tax Rate). Column 6: Side fund balance at the beginning of the year. Column 7: Side fund interest earned: (Column 6 * Net opportunity cost rate of return). Column 8: Side fund tax payment at the end of the year: (Column 5). Column 9: Side fund balance at end of the year: (Column 6 + Column 7 - Column 8). |