# Overview

#### Main Menu Name: **Future**

Prepares a year-by-year schedule of the value of an investment fund where the initial contribution is increased annually by a stated percentage. The schedule also reflects the after-tax rate of return on accumulated capital over the given accumulation period.

### In this article:

# Background

An increasingly useful "time value of money" calculation is the growing annuity. Using this approach, it is possible to determine how much a client will have in a fund at the end of each year, if he increases the level of his investment each year and earns a given rate of return on his investment.

For example, your client wants to begin accumulating capital for retirement over the next twenty years. She will make an initial year-end contribution of $2,000 and feels confident she can earn, after taxes, a six-percent rate of return. She is also committed to increasing her contributions by five percent each year. Her contributions and earnings will total $110,768 at the end of twenty years.

Representatives should remind their clients that the resulting amount is in terms of future rather than present dollars. In other words, the client may accumulate $110,768, but those funds will not have the same value (purchasing power) in the future as they would have today. For example, assuming a five-percent rate of inflation over twenty years, the present value of $110,768 is only $41,747.

# Why should I use this calculator?

- Determine the value to which a retirement plan will grow if annual contributions are increased each year.
- Illustrate the value of steadily increasing contributions to an investment as opposed to making a fixed contribution.
- Calculate the accumulated earnings on an investment fund and compare that value to the amount of actual contributions made by the investor.
- Compute the length of time necessary to accumulate a desired amount given increasing contributions and a stated interest rate.

# Getting Started

An increasingly useful "time value of money" calculation is the growing annuity. Using this approach, it is possible to determine how much a client will have in a fund at the end of each year, if he increases the level of his investment each year and earns a given rate of return on his investment.

For example, your client wants to begin accumulating capital for retirement over the next twenty years. She will make an initial year-end contribution of $2,000 and feels confident she can earn, after taxes, a six-percent rate of return. She is also committed to increasing her contributions by five percent each year. Her contributions and earnings will total $110,768 at the end of twenty years.

Planners should remind their clients that the resulting amount is in terms of "future" rather than "present" dollars. In other words, the client may accumulate $110,768, but those funds will not have the same value (purchasing power) in the future as they would have today. For example, assuming a five-percent rate of inflation over twenty years, the present value of $110,768 is only $41,747.

# Entering Data

**Initial Annual Contributions:**Enter the initial annual contributions.**After-Tax Return on Invested Capital:**Enter the after-tax rate of return on the invested capital.**Annual Increase in Contributions:**Enter the annual percentage increase in contributions.**Accumulation Period:**Enter the number of years in the accumulation period.

# Results

The program will prepare a yearly schedule (up to 35 years) showing the annually increasing contributions, the total contributions on a cumulative basis, and the total value of the fund including earnings.

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