Nội dung

Chapter 20 Taxes, Inflation, and Investment Strategy McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. 21.1 Saving for the Long Run 21-2 Basic Considerations in Developing a Plan • The major goal is retirement planning. • Time until retirement – When do you plan to retire? – When can you collect Social Security? • Life expectancy – How long will you live after you retire? • Rate of return – How much risk are you willing to take? • Allocation of income to savings – How much are you saving for retirement? 21-3 Finding Your Retirement Annuity 21-4 21.2 Accounting For Inflation 21-5 Planning with Inflation • Inflation reduces the real value of the retirement benefit by eroding the purchasing power of the dollars earned. – Real consumption = Nominal consumption / Price Deflator (ROR  i) ; 1 i  real return; i  inflation rROR  rROR rROR  (.06  .03 )  2.91% 1  .03 ROR  nominal return – Suppose inflation = 3% per year and the nominal rate of return is 6%. What is the real rate of return? 21-6 Planning with Inflation • The investor in the example is 30 years old. What is the size of the price deflator with 3% inflation at age 35? (1  i)n  1.03 5  1.16 1.0335  2.81 • By age 65? 21-7 Interest Rates, Inflation, and Real Interest Rates, 1926-2008 21-8 Planning with Inflation • To overcome inflation requires either higher savings or higher rates of return on investment or both • Because taxes are paid out of nominal returns, inflation reduces the after tax rate of return even further. 21-9 A Real Retirement Plan 21-10