How Much is Enough To Achieve What You Want?

This calculator determines what initial lump sum/proceed payment (less any existing investment assets) is required to generate an inflation adjusted income stream for a specified time period. For the sake of simplicity, the calculation does not consider the effects of taxes on the income stream/annual withdrawal.

This calculator is the reciprocal to How Long Will the Proceeds Last - as both consider the same set of constraints and timing of cash flows.

Please take note that this calculator is a modified version of "How Much is Enough Considering Inflation" which targets the spouse's age and life expectancy to better determine the most common desired timeframe for the funds to last - Whereas this calculator simply requests the desired income duration.

The importance of doing the calculation again of how long will the proceeds last is to illustrate first the impact that inflation is going to have on the savings and investment account over time trying to sustain the same level of income. The second point an even more important discussion is the point that it is impossible to leave someone rich from life insurance. You will notice that the amount required to leave ones current income adjusted for inflation will come very close to the maximum amount of insurance one can own from all carriers.

If one were to buy all the coverage the company will issue they would not be able to leave someone rich from the proceeds of the insurance. At best the amount of coverage could replace the income potential lost. If one lives their family would potentially enjoy the fruits of their labor and enjoy their current level of income adjusted for inflation over their lifetime.

When you look at life insurance through this lens it is easy to see that it is a "want" product. There is a limit to the amount you can buy. At this point we want to reiterate the two options available. First this is the current amount of insurance you have today and your family will run out in this amount of time. Is this what you "want"? I have shown you the maximum amount of coverage you can have and shown you when that amount would run out based on current projections.

It is a simple question. How much do you "want".

The problem is solved via iteration using a worksheet defined as follows:

Column 1: Spouse age.

Column 2: Balance at beginning of year before withdrawals (this includes the sum of existing assets and initial lump sum proceeds).

Column 3: Annual Withdrawal/Income Stream requirement adjusted for inflation.

Required Income * (1 + Inflation Rate) ^ n where n=year number

Column 4: Balance at beginning of year after withdrawals (column 2 - column 3).

Column 5: Annual Account Growth (column 4 * Investment ROR).

Column 6: Balance at end of year (column 4 + column 5).

The program uses an iterative algorithm to estimate and then refine the value of the unknown initial lump sum value, such that when this value is added to the first year beginning balance of the worksheet, the calculated final year end of year balance is zero.