Future Value
 

I am trying to run a future value out 35 years (a retirement calculation)
with all constants, except I want the "PMT" to be variable, specifically, I
want the payment to be 3% of my salary, indexed each year for inflation (I am
using 3.5%). This is not my actual savings, but instead a simulation comaring
the company's pension contribution versus a 3% contributuion to a 401k. So if
my salary is $100,000, in year one, PMT would be $3000, but in year two, PMT
would be $3105 (3% of 103,500) and so on. Any advice would be appreciated.
Thanks!

Future Value
 

The formula for the future value of indexed payments, where i is the
interest rate, and j is the indexing rate, is:

FV = ((1+i)^n - (1+j)^n)/(i-j)

Regards,
Fred.

"tsd" wrote in message
...
I am trying to run a future value out 35 years (a retirement calculation)
with all constants, except I want the "PMT" to be variable, specifically,
I
want the payment to be 3% of my salary, indexed each year for inflation (I
am
using 3.5%). This is not my actual savings, but instead a simulation
comaring
the company's pension contribution versus a 3% contributuion to a 401k. So
if
my salary is $100,000, in year one, PMT would be $3000, but in year two,
PMT
would be $3105 (3% of 103,500) and so on. Any advice would be appreciated.
Thanks!

Future Value
 

The future value of indexed payments, where i is the interest rate, and j is
the indexing rate, is:

= ((1+i)^n - (1+j)^n) / (i-j)

Regards,
Fred

"tsd" wrote in message
...
I am trying to run a future value out 35 years (a retirement calculation)
with all constants, except I want the "PMT" to be variable, specifically,
I
want the payment to be 3% of my salary, indexed each year for inflation (I
am
using 3.5%). This is not my actual savings, but instead a simulation
comaring
the company's pension contribution versus a 3% contributuion to a 401k. So
if
my salary is $100,000, in year one, PMT would be $3000, but in year two,
PMT
would be $3105 (3% of 103,500) and so on. Any advice would be appreciated.
Thanks!

Future Value
 

Fred,

Thanks for getting back to me so quickly. You may need to dumb this down a
bit for me though. For some reason, after I imput your formula, Excel doesn't
recognize the rest. What does "n" stand for?



"Fred Smith" wrote:

The future value of indexed payments, where i is the interest rate, and j is
the indexing rate, is:

= ((1+i)^n - (1+j)^n) / (i-j)

Regards,
Fred

"tsd" wrote in message
...
I am trying to run a future value out 35 years (a retirement calculation)
with all constants, except I want the "PMT" to be variable, specifically,
I
want the payment to be 3% of my salary, indexed each year for inflation (I
am
using 3.5%). This is not my actual savings, but instead a simulation
comaring
the company's pension contribution versus a 3% contributuion to a 401k. So
if
my salary is $100,000, in year one, PMT would be $3000, but in year two,
PMT
would be $3105 (3% of 103,500) and so on. Any advice would be appreciated.
Thanks!

Future Value
 

Sorry, I thought you were familiar with financial functions. "n" is the
term -- in your case number of years to retirement, assuming you are using
annual payments.

Regards,
Fred.

"tsd" wrote in message
...
Fred,

Thanks for getting back to me so quickly. You may need to dumb this down a
bit for me though. For some reason, after I imput your formula, Excel
doesn't
recognize the rest. What does "n" stand for?



"Fred Smith" wrote:

The future value of indexed payments, where i is the interest rate, and j
is
the indexing rate, is:

= ((1+i)^n - (1+j)^n) / (i-j)

Regards,
Fred

"tsd" wrote in message
...
I am trying to run a future value out 35 years (a retirement
calculation)
with all constants, except I want the "PMT" to be variable,
specifically,
I
want the payment to be 3% of my salary, indexed each year for inflation
(I
am
using 3.5%). This is not my actual savings, but instead a simulation
comaring
the company's pension contribution versus a 3% contributuion to a 401k.
So
if
my salary is $100,000, in year one, PMT would be $3000, but in year
two,
PMT
would be $3105 (3% of 103,500) and so on. Any advice would be
appreciated.
Thanks!

Future Value
 

One more thing -- the formula I gave you is the future value factor -- ie,
how much payments of $1 per year indexed at j% will grow to at an interest
rate of i% for n years.

To get your future amount, multiply by your initial annual payment. The full
formula is therefo

= PMT * (((1+i)^n - (1+j)^n) / (i-j))

Using your data of a initial payment of $3000, inflation at 3% and a 6% rate
of return over 35 years, you get:

= 3000 * (((1+.06)^35 - (1+.03)^35) / (.06 - .03))
= $487,222

Regards
Fred

"tsd" wrote in message
...
Fred,

Thanks for getting back to me so quickly. You may need to dumb this down a
bit for me though. For some reason, after I imput your formula, Excel
doesn't
recognize the rest. What does "n" stand for?



"Fred Smith" wrote:

The future value of indexed payments, where i is the interest rate, and j
is
the indexing rate, is:

= ((1+i)^n - (1+j)^n) / (i-j)

Regards,
Fred

"tsd" wrote in message
...
I am trying to run a future value out 35 years (a retirement
calculation)
with all constants, except I want the "PMT" to be variable,
specifically,
I
want the payment to be 3% of my salary, indexed each year for inflation
(I
am
using 3.5%). This is not my actual savings, but instead a simulation
comaring
the company's pension contribution versus a 3% contributuion to a 401k.
So
if
my salary is $100,000, in year one, PMT would be $3000, but in year
two,
PMT
would be $3105 (3% of 103,500) and so on. Any advice would be
appreciated.
Thanks!