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Your new clients, Joe and Annie Jordan, ask this question, “We have a combined $1,000,000 on our 401(k)s, and want to know how much after-tax, retirement cash flow we can realize from it – how far does $1,000,000 go in retirement?”

Joe and Annie need to provide more information for you to answer this question realistically:

• Current age: Both are age 60.
• Retirement age: 70
• Years of retirement: 25
• Inflation assumption: 2.00%
• 401(k) yield: 7.00%
• Tax bracket assumption: They expect to remain in a combined federal and state tax bracket of 35% throughout the analysis.

Using InsMark’s Defined Contribution Retirement Plan Calculator, the results of this evaluation are below.

Image 1

After-Tax Retirement Cash Flow

($1,000,000 401(k) Assets)

Annual Yield: 7.00%

Click here to review the year-by-year reports of Image 1.  As you can see in Col. (4) on Page 2, the after-tax cash flow produced in the first retirement year is $77,587.  The 2.00% COLA gradually increases that after-tax number to $124,818 over 30 retirement years.  Result: The COLA provides the annual purchasing power of $77,587 in each retirement year (assuming inflation is 2.00%, the same as the COLA).

Let’s do another one by changing the yield assumption to random percentages between 24.00% and -10.00% that averages 7.00% over the 35 years from age 60 to 95.

Image 2

After-Tax Retirement Cash Flow

($1,000,000 401(k) Assets)

Random Yields: Averaging 7.00%

Click here to review the year-by-year reports of Image 2.  As you can see in Col. (4) on Page 2, the after-tax cash flow produced in the first retirement year is $80,912.  The 2.00% COLA gradually increases that after-tax number to $130,169 over 30 retirement years.  Result: The COLA provides the annual purchasing power of $80,912 in each retirement year (assuming inflation is 2.00%, the same as the COLA).

In Part 2 (scheduled for December 2019), we will continue the retirement evaluation for Joe and Annie Jordan, taking into account all their assets and benefits.

Illustration Resource

Click here to see the full array of calculators available on the InsCalc tab of the InsMark Illustration System.  They are available for taxable, tax-exempt, tax-deferred, equity, IRA, and Roth IRA accounts.  Each of them features similar logic as the Defined Contribution Retirement Plan Calculator used for the 401(k) evaluation in this Blog.  They all allow you to generate random yields and growth between high and low percentages, as was done for Image 2 above, producing a more realistic sequence of returns.

Be sure to review the Guide to Digital Workbook File for Blog #197 available below for a user guide regarding the data used for this Blog.

Licensing InsMark Systems

To license the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275) or visit us online.  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward it to your PC where your InsMark System(s) are installed.

If you obtain the digital workbook for Blog #197, click here for a user guide to its content.

For help on how to use InsMark software, go to The Quickest Way To Learn InsMark.

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Important Note #1:  The hypothetical values referred to in this Blog assume the nonguaranteed values shown continue in all years.  This is not likely, and actual results may be more or less favorable.

Important Note #2:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.