Millionaire Maker: Tax Advantage Estimator
"One of the basic points of the Millionaire Kit formula is that you can use tax advantaged investments to get much and sometimes even most of the money you need to build your wealth. People sometimes doubt this assertion. And that’s really why I included the Tax Advantage Estimator calculator. It shows you how much money you can get from your employer or from tax savings." - Stephen L. Nelson |
1. Enter the monthly savings amount required for your investment wealth program into the Monthly amount you need to save box.
2.. Enter your marginal tax rate into the Your marginal tax rate box. Most people's marginal tax rates are either 15 percent or 28 percent.
3. If you're going to use a 401(k) plan or a Simple-IRA, enter the percentage amount your employer will add to your contribution. For example, if your employer will boost your $100 a month contribution by kicking in another $50 a month, the matching percentage is 50 percent and you enter 50 into the Employer's matching percentage box. Be careful, by the way, that you don't enter the contribution as a percentage of your salary. You want to enter the employer's contribution as a percentage of your contribution.
4. Enter the annual interest rate you think you'll earn on your investment portfolio into the Annual interest rate box. For example, if you think you'll earn 5.7 percent (which is roughly the long-term return that high-quality corporate bonds have delivered), enter 5.7. If you think you'll earn 10.5 percent (which is roughly the long-term return that common stocks have delivered), enter 10.5.
5. Enter the annual inflation rate you expect into the Estimated inflation rate box. For example, if you think we'll experience roughly 3.1 percent inflation (the average over the past 70 years), enter 3.1.
6. Click the Estimate button to calculate the components of your monthly savings both with and without the use of a tax-advantaged investment. The key comparison is between the savings you contribute out of your after-tax income using a tax-advantaged investment (like a 401(k) or IRA) and the savings you contribute out of your after-tax income if you don't use a tax-advantaged investment.
Note: What the calculator shows you-and this is important-is how much of the money you need to save can come from either your employer's matching contributions or from income tax savings. The Tax Advantage Estimator also calculates the effect of income taxes and inflation on your compound interest rate.