navbar-top.gif
btn_spacer.gifHomeTopicsLatestRandomAboutFAQsParticipateAuthoring Areabtn_spacer.gif

Fund Drawdown Simulation

This Demonstration allows the user to estimate the value of a pool of money (the fund) that increases in value due to an investment return on the funds (at rates between 0 and 10% per year) and decreases in value due to an annual withdrawal. An example of the usage of this Demonstration would be to estimate how the value of a college fund changes over the four years that tuition and living expenses are withdrawn, while the balance of the fund continues to earn interest. Similarly, the value of a retirement nest egg can be estimated under a situation where the retiree makes annual withdrawals. The last column of the table and the blue-lined plot show how inflation and withdrawal rates affect purchasing power relative to the initial year's value.


A change in the "annual withdrawal increase (%)" applies the selected percentage increase to the value set by the "initial annual withdrawal". For example, if the initial annual withdrawal is set at $1000 and the annual withdrawal increase is set at 5% (to keep up with inflation, say), then the annual withdrawal for the second year will be $1000 x 1.05 = $1050. The annual withdrawal for the third year will be $1050 x 1.05 = $1102.50 and so on.
Here is an equation:
,
where is the annual return as a fractional value and is the chosen annual withdrawal rate.
This Demonstration solves the above differential equation over a settable range of 0 to 30 years. When the constant annual withdrawal exceeds the investment return, the value of the fund declines over time. In this situation, the "value ($K)" column of the table may turn negative. In this case, the fund has been exhausted and the additional rows and columns of the table are not meaningful.
Free Download: Mathematica Player--Runs all Demonstrations & more


Share & Bookmark This Demonstration


Powered by Wolfram Mathematica
Give us your feedback
Give us your feedback

Source page:




 often  occasionally  never

Note: Please do not include anything you consider confidential or proprietary. We will keep your information private. We will not give it to any third party.
Privacy Policy »

©  2008 The Wolfram Demonstrations Project & Contributors    Wolfram Research    Site Index    Terms of Use    Privacy Policy    RSS    Atom