Monday, September 01, 2008

Graduated Annuity Calculator

I use Google Analytics to keep track of visits to the Cogitorium as a matter of curiosity. When I posted the results of my graduated annuity calculations, I figured most people would respond as my brother did: "Why would you write about something boring like that?" Much to my very great surprise, my entry on the graduated annuity has turned out to be my most popular! Since the beginning of this year, the entry has received nearly one hit per day (which is a lot by my humble standards).

Given the interest in graduated annuities, I thought I would whip up a quick applet to perform calculations with the graduated annuity, since many people might not want to slog through the math on their own. Below are a few usage notes, the applet, and several calculation examples. For those who are interested, the source code is available, and is released into the public domain.

  1. The Interest Rate and the Acceleration Rate are entered in percent and cannot be the same.
  2. When calculating the Final value, enter a positive Base Value for savings or a negative Base Value (with an Initial Value) for accelerated withdrawals.
  3. When calculating either rate, no Initial Value is permitted.
  4. Selecting Years calculates the amount of time a given Initial Value will last with accelerated withdrawals. It doesn't work with Final Values other than 0, or with positive Base Deposits.
  5. Enter 0 for the Acceleration Rate to calculate a normal annuity.

  1. To calculate the savings of $1000/year (unaccelerated) for 10 years at 5% interest, enter 0 for the Initial Value, 1000 for the Base Deposit, 5 for the Interest Rate, 0 for the Acceleration Rate, and 10 for Years. Pressing calculate gives $12,577.89.
  2. Suppose we choose to accelerate the savings in the previous example by 4% each year. Enter 4 for the Acceleration Rate. Pressing calculate shows the savings grow to $14,865.03.
  3. Suppose we have $10,000 and would like to reach $100,000 in 5 years. How much would need to be saved each year, if we expect an 8% return on the savings? Select the Base Deposit radio button, enter 10000 for the Initial Value, 100000 for the Final Value, 8 for the Interest Rate, 0 for the Acceleration Rate, and 5 for Years. Pressing calculate gives $14,541.08.
  4. Suppose we want to reach $100,000 in 10 years. If we start with a $6,000/yr deposit, how fast would the deposits have to accelerate to reach our goal, if we expect an 8% return on the savings? Select the Acceleration Rate radio button, enter 0 for Initial Value, 100000 for Final Value, 6000 for Base Deposit, and 10 for Years. Pressing calculate shows that the deposit amount must increase by 3.6% each year to reach the goal.
  5. Suppose we have $500,000 saved for retirement, earning 5% per year. We plan on withdrawing $30,000/yr and would like to increase this amount by 2% each year to account for cost of living increases (price inflation). How much will be left after 10 years? Select the Final Value radio button, and enter 500000 for Initial Value, -30000 for Base Desposit, 5 for Interest Rate, 2 for Acceleration Rate, and 10 for Years. Pressing calculate shows that $404,547.11 will remain.
  6. How long will the savings in this scenario last? Select the Years radio button. Pressing calculate shows that the savings will last almost 24 years.