When will I run out of money ?
Tuesday, 12 February 2008 20:55

This example demonstrates the annuity calculator with indexation. Another example of the use of this calculator deals with the present value of an inflation adjusted pension.

Suppose you have \$ 300000 and you want to know how long you can do with it. The money gives you 6% interest and the inflation is 4%. You spent \$ 2500 per month which increasing with inflation. This can be entered into the calculator as follows:

FieldValueDescription
Present value300Enter here the initial sum.
Interest (%)6The interest, should be greater than the inflation.
Initial term amount2.5The initial monthly costs of living.
Number of termsLeave this field empty, this means that this field should be computed.
Indexation terms (%)4The yearly inflation percentage of the costs of living. This percentage should be smaller than the interest rate.

When finished click on Compute and below the number of months your money lasts is displayed.

An interesting question is how much money you need to support someone forever. So how much money do you need to support yourself, and when you die to support your child etc. This can be computed by leaving the field Present value empty. You could enter a large number for the number of terms. Instead it is better to enter zero (0) for the number of terms. The calculator interprets this zero als an infinite number of terms. Just as in the previous computations the interest rate should be greater than the inflation.