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Die Broke - 19011024 PDF
Die Broke - 19011024 PDF
Retirement Fund :
Die Broke Method
Financial Planning
Case
Dude Herlino, 30 years old, has one wife and two children, works as entertainer artist with IDR 25 million
monthly income. He wants to retire at 55 year old. Based on family history the life expectancy is 67 year
old but his wife expect that he can live until 70 year old. He does not have any pension from his current
work. Inflation can be assumed at 6 %.
Calculation:
Income
Living Cost
Retirement Age
: 55 year
Current Age
: 30 year
Life Expectancy
: 70 year
: 55 30 = 25 year
Pension time
: 70 55 = 15 year
30 years old
25 year
55 years old
retired
70 years old
15 year
The living cost for the next 25 years (55 years old). Assume that our living cost in retirement time will be
lower than current cost. It is about 75% of current living cost.
Present value
= IDR 18 million
Inflation
=6%
Time
= 25 years
Retirement Period
Principal
Interest (15%)
Remaining Principle
Principal x Interest
PV (1+r)n
55
56
IDR 5,455,682,726.20
IDR 818,352,408.93
IDR 696,000,000.00
IDR 5,578,035,135.13
57
IDR 5,578,035,135.13
IDR 836,705,270.27
IDR 737,760,000.00
IDR 5,676,980,405.39
58
IDR 5,676,980,405.39
IDR 851,547,060.81
IDR 782,025,600.00
IDR 5,746,501,866.20
59
IDR 5,746,501,866.20
IDR 861,975,279.93
IDR 828,947,136.00
IDR 5,779,530,010.13
60
IDR 5,779,530,010.13
IDR 866,929,501.52
IDR 878,683,964.16
IDR 5,767,775,547.50
61
IDR 5,767,775,547.50
IDR 865,166,332.12
IDR 931,405,002.01
IDR 5,701,536,877.61
62
IDR 5,701,536,877.61
IDR 855,230,531.64
IDR 987,289,302.13
IDR 5,569,478,107.12
63
IDR 5,569,478,107.12
IDR 835,421,716.07
IDR 1,046,526,660.26
IDR 5,358,373,162.93
64
IDR 5,358,373,162.93
IDR 803,755,974.44
IDR 1,109,318,259.87
IDR 5,052,810,877.50
65
10
IDR 5,052,810,877.50
IDR 757,921,631.62
IDR 1,175,877,355.47
IDR 4,634,855,153.66
66
11
IDR 4,634,855,153.66
IDR 695,228,273.05
IDR 1,246,429,996.79
IDR 4,083,653,429.91
67
12
IDR 4,083,653,429.91
IDR 612,548,014.49
IDR 1,321,215,796.60
IDR 3,374,985,647.80
68
13
IDR 3,374,985,647.80
IDR 506,247,847.17
IDR 1,400,488,744.40
IDR 2,480,744,750.57
69
14
IDR 2,480,744,750.57
IDR 372,111,712.59
IDR 1,484,518,069.06
IDR 1,368,338,394.09
70
15
IDR 1,368,338,394.09
IDR 205,250,759.11
IDR 1,573,589,153.21
IDR -
The Steps to Calculate How Much Principle of the First Retirement Period
1. Assume that :
a. The column of principal
=A
=B
The formula:
= Interest x Principal
= 15 % x A = 0.15 A
c. The column of cost of living expense
=C
=D
D=A+BC
In the last period, A = 0
2. Calculate the number of a in the last period of retirement
D
=A+BC
= A + 0.15A C
= 1.15A C
C+D
= 1.15 A
= (C + D)/1.15
= (1,573,589,153.21 + 0)/1.15
= 1,368,338,394.09
The principal in the last period is equal to the remaining principal (D) in 14th period. So, we
can copy the principal in last period in and paste into the remaining principal (D) in 14th period.
Then, the formula of the principal in 14th period is the same with in the last period.
A (principal in 14th period)
= (1,484,518,069.06 + 1,368,338,394.09)/1.15
= 2,480,744,750.57
Repeat the formula with drag and drop to the first period (using Ms. Excel), so we can get the
principal in the first period, which is 5,455,682,726.20
So, with die broke method, we can find that the principal in the first period retirement is
IDR 5.5 billion (rounded up, living cost IDR 696 million per year, inflation 6%, return 15%)