## Income Ladder ExampleAssume that the goal is to create a reliable stream of investment income for 10 years with the first year's income starting at $30,000 and then increasing 3% each year thereafter to compensate for inflation. The desired income is then as follows:
Enter these amounts in the first row of the calculator as shown below:
Next assume that the income ladder will be funded with bank certificates of deposit (CDs) and that they are currently available with the annual yields and corresponding maturities shown below. You can find current yield rates at: Bankrate.com
Enter these yield rates as shown next. Notice that only 9 yield rates are needed for a 10-year income ladder.
Next select the Type 1 income ladder button where interest is withdrawn annually from each CD.
The
This schedule of investments will exactly provide the desired income for years 2 through 10 assuming that interest is withdrawn annually. Again the first year's income is assumed to be met with cash. The total capital needed to purchase this ladder plus the first year's cash income is $291,330.
For comparison, next select the Type 2 income ladder button where interest is not withdrawn each year but rather accrued and compounded until maturity:
Notice now that each
investment only contributes interest income after it matures. The
total cost to fund the ladder is nearly the same as the Type 1 income
ladder, but slightly higher at $292,010. The Type 1 income
ladder will be the lower cost option in most cases, but there are
exceptions. During times when the yield curve is
This schedule of investments will exactly provide the desired income for years 2 through 10 assuming that interest is not withdrawn annually. And again it is assumed that the first year's income is met with cash. Copyright © 2009-2017 IncomeLadders.com. All Rights Reserved. |