Spreadsheet 21.1 Savings Plan

1. Spreadsheet 21.1 Savings Plan

2. 21.2 Accounting for Inflation • Inflation erodes real value of purchasing power • Real consumption = Nominal consumption/ Price Deflator • What is the real rate of return if inflation = 6% and nominal ROR is 6% annually?

3. Spreadsheet 21.2 Real Retirement Plan

4. Spreadsheet 21.3 Backloading Real Savings Plan

5. 21.2 Accounting for Inflation • Another Problem with Inflation • Inflation continues after retirement • Level annuity equals declining standard of living • Purchasing power of the $192,244 at age 65: • Purchasing power of the $192,244 at age 90:

6. Spreadsheet 21.4 Saving with Simple Tax Code

7. Spreadsheet 21.5 Saving with Flat Tax and IRA

8. Spreadsheet 21.6 Saving with Progressive Tax

9. Spreadsheet 21.7 Benchmark Tax Shelter with Progressive Tax Code

10. Spreadsheet 21.8 Roth IRA with Progressive Tax

11. Table 21.2 Traditional versus Roth IRA under Progressive Tax Code

12. Table 21.5 Calculation of Retirement Annuity of Representative Retirees if 2012, Age 66 a Income is above the maximum taxable, and income replacement cannot be calculated. b 2008 PIA parameters (bend points) are used. 2008 is the year of eligibility, that is, the year in which the retiree attains age 62. c COLA adjustment for years 2008–2011: 5.8%, 0.0%, 0.0%, 3.6%. d Internal rate of return.

13. Figure 22.1 Investment Management Process

14. Table 22.1 Components of Investment Management Process

15. Table 22.2 Components of Investment Policy Statement

16. Table 22.3 Determination of Portfolio Policies

17. Table 22.4 Matrix of Objectives

18. Table 22.5 Matrix of Constraints

19. Figure 22.2 Asset Allocation and Security Selection, Partial Investments