I ran across someone pushing the idea of investing purely in the stock market with the following example:

Example:

x: retire in 30 years

y: invest $100,000 up front for ease of example

z: return rate 10% (supposedly the average stock return over the past 25 years)

Basic math do to figure out how much money y dollars will turn into in x years assuming z interest rate:

y*(1+z)^x = $1,744,940

************

I decided to have a little fun and produced a counter example, being very generous with inflation and tax rates:

Example:

x: retire in 30 years

y: invest $100,000 up front for ease of example

z: return rate 10%

t: tax rate of 30%

i: inflation rate of 3%

Basic math do to figure out how much money y dollars will turn into in x years assuming z interest rate:

y*(1+z)^x = $1,744,940

Unfortunately, this is forgeting a tax rate t you pay on withdraw which changes the equation to:

{[y*(1+z)^x]-y*(1-t)}+y = $1,251,458

Next important factor to consider would be inflation rate of i to actually find what the purchasing power of that future cash out will be.. unfortunately, taxes ignore this fact and tax you on the unadjusted numbers:

[{[y*(1+z)^x]-y*(1-t)}+y]*(1-i)^n = $501,844 in real purchasing power

:rotflmbo:

Pass this simple example on to those that love equities

Example:

x: retire in 30 years

y: invest $100,000 up front for ease of example

z: return rate 10% (supposedly the average stock return over the past 25 years)

Basic math do to figure out how much money y dollars will turn into in x years assuming z interest rate:

y*(1+z)^x = $1,744,940

************

I decided to have a little fun and produced a counter example, being very generous with inflation and tax rates:

Example:

x: retire in 30 years

y: invest $100,000 up front for ease of example

z: return rate 10%

t: tax rate of 30%

i: inflation rate of 3%

Basic math do to figure out how much money y dollars will turn into in x years assuming z interest rate:

y*(1+z)^x = $1,744,940

Unfortunately, this is forgeting a tax rate t you pay on withdraw which changes the equation to:

{[y*(1+z)^x]-y*(1-t)}+y = $1,251,458

Next important factor to consider would be inflation rate of i to actually find what the purchasing power of that future cash out will be.. unfortunately, taxes ignore this fact and tax you on the unadjusted numbers:

[{[y*(1+z)^x]-y*(1-t)}+y]*(1-i)^n = $501,844 in real purchasing power

:rotflmbo:

Pass this simple example on to those that love equities

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