Author Topic: Financial independence - Calculator ( Covering TFSA / Equity and RA)  (Read 19971 times)

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Hi guys

Since Financial independence have been bugging me a while, i decided to put some time into the following calculator.

Calculator Link
(hosted on dropbox, please select download (Three dots top right)



It basically calculates over 4 evenly distributed periods what your after tax return will be for the different type of investments (and combinations there of)
Basic operation :
  • income is invested as per inputs
  • investment is stopped at the configured FI years
  • Required salary at that age is calculated (basically current expenses inflation adjusted plus the spending buffer
  • draw-down is tested(eg first equity then TFSA(using the required salary calculated as per above)
  • once 55 is reached draw capital is combined with RA, and max salary is drawn to reach 95
  • possible surplus salary at 55 is reported (after tax, inflation adjusted), as well as draw strategy that gave the best result
**Note1  If draw down pre 55  failed, salary will be shown as R0.00

Inputs:






Something interesting that the calculator now roughly allows is to determine if pre tax or post tax RA contributions is the best (remember to adjust your after tax savings percentage accordingly)


Capital gain tax is applied to Equity investments with exclusions applied.

If any obvious mistakes is picked up, please let me know. Otherwise - i hope this helps someone :)

The usual yada yada T&C's applies - cant take responsibility if an excel mistake causes you to eat beans at the age of 60 :P).

Have fun

Neo_x

*edit*
Update to version 4.2(4/05/2017)
* Added the latest tax tables (note that tax tables for future years is automatically adjusted based on a 10 year average.)
* increased TFSA to 33,000  (note that there is an option to automatically increase the TFSA)



Update to version 4.1(8/03/2016)
* Added the latest tax tables (note that tax tables for future years is automatically adjusted based on a 10 year average.)
* improved the CGT formulae to allow adapting to future tax changes (latest tax change moved the previous 33% up to 40%)

*pending - still to Add the RA contribution limit ( there is an annual amount after which the tax benefit doesn't apply on a RA)

Update to version 4.0(6/12/2015)
* Added functionality to add retirement annuity deduction as per payslip. (caution  - this is kept constant throughout the calculator and adjusted as per your pay increases. Any other contributions towards an RA will be after tax, and tax returns will be re-invested).
Although some checks is in place, please double check that your RA deduction is not greater than the allowed SARS Tax benefit.
/* this is quite a major update - if anything strange is noted on the results, please provide feedback

* Summary screen was updated -with a total Portfolio value, and some readability/formatting.



Update to version 3.8(03/12/2015)
* Improved summary page after some recommendations (added portfolio values at the FI year, so that you can have a visual of the values)

Update to version 3.7(19/11/2015)
* improved a formula to be more accurate for monthly interest(This was workbook wide, thus affects all totals)

Update to version 3.6 (7/7/2015)
* fixed a bug that slipped in when moving some of the reference tables around (affected TFSA contributions)
* adjusted tax table inflation averages a little.


Update to version 3.5
* Added a once off bonus at FI - configurable. This is to allow a lumpsum draw to happen at FI, mostly  for big expenses (paying off house/car, etc)
* Fixed tax tables between FI age and 55- changed to  CGT tax(was previously normal tax)
* Improved readability on summary screen


Update to version 3.4
*Adjusted internal calculations ,based on paying current loans (eg home /car) - expenses that wont remain into financial independence for long - configurable(change to zero if you plan to keep paying off your home/car  up to 95 :P)
*improved the results screen ,showing more details as to what is happening, including your salary at FI.

only challenges that still remains :
* Drawing a salary after FI is calculated, mostly, based on drawing your tax every month. this wont be the case, as you will draw a once off SARS amount after tax claims are due.

* Homeloan and car expenses is removed after the payment period is complete - not sure how to tackle the scenario where you want to continue wasting money into the latest and fastest clown-mobiles every few years. for now, please configure the buffer to allow for any expenses that you will keep/add after FI.


Update to version 3.3
*discovered and fixed a major miscalculation with regards to savings (was previously matching salary increases, while it should be based on salary minus inflation adjusted expenses.
Bonus part is that this increases savings, and thus will result in a quicker FI.
*added more accurate descriptions on the summary page
*added a check to show a salary shortfall (eg your increases is below inflation, which then results in running into a salary that cant carry your expenses.

Update to version 3.2
*Tax tables was "ahead" with a year - Corrected
*Improved the Salary prediction required at Financial Independence - should now be much more accurate(current expenses is inflation adjusted with buffer added, then reverse tax is applied to determine the before tax salary)
*Added a Spending buffer which will be added to your salary after FI (use full if you want to go on that yearly travel trip :p



Update to version 3.1
* Expanded draw down function - now select the most rewarding draw path (selecting between Equities/ TFSA and also splitting a third of the RA at 55 into equities or keeping it in tact)
* Added a option to block TFSA limits from increasing every  year(configurable under constants)
* fixed some calculations for extreme cases(eg paying RA and TFSA off in one month)

Update to version 3.0
Major functionality update - basically it is now a South African Financial Independence calculator. Most Inputs is customizable, including Age, Inflation, and current portfolio values. System will output 3 periods between your current age and 55 years, allowing you to see capital growth.

Update to version 2.0
* major changes in tax tables - applied 10% increase on tax tables per year (current average since 2005) - this is configurable under inputs...
* added 20 and 30 year results sets as well
* 10 year result is based on tax for a ten year "draw" (year 15 tax is applied)
* 20 year result is based on tax for a twenty year "draw" (year 30 tax is applied)
* 30 year result is based on tax for a thirty year draw (year 45 tax is applied)


Update to version 1.7
* Fixed tax tables related to tax return(now properly selects the correct bracket)
* Applied the before 65 rebate of 13 to all calculations

Updated to version 1.6
* Fixed a mistake on the first third RA tax (Thank you KalMaverick!)

Updated to version 1.5
* Added Ability to limit RA contribution to values other than 15%
* Applied latest SARS tax tables
* Tax on RA 2/3's and Equities was adjusted to be more leniant (assuming 10% draw down)
* Tax bracket changes due to salary increase should also be handled better now
*

Updated to version 1.4
* Fixed RA SARS return when only small portion of Salary is paid

Updated to version 1.3
fixed major mistake on "TFSA then RA" worksheet, plus corrected RA lump sum tax as per latest SARS document

Updated to version 1.2
Fixed for small salaries (eg not capable of reaching RA of 15%)
fixed for big salaries (tax return of greater than 30k was messing up TFSA allocation)
« Last Edit: May 04, 2017, 01:31:30 pm by erwintwr »

Hamster

  • Hero Member
  • *****
  • Posts: 532
  • Karma: +13/-0
    • View Profile
    • Off Topic
Re: TFSA vs RA vs Satrix - Calculator
« Reply #1 on: May 26, 2015, 07:15:26 am »
Nice

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2299
  • Karma: +38/-2
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #2 on: May 26, 2015, 08:49:26 am »
Phew that's quite a serious spreadsheet. I'm trying to get my head around the numbers. I can't figure out why the TFSA then RA beats the RA then TFSA when you're in the 41% tax bracket, with performance being the same. Is it perhaps that even though you've got more cash available going the RA route, this isn't invested, while the post investment tax savings in the TFSA is, making it look like the TFSA has you better off financially?

I'm trying to think of a way your spreadsheet could illustrate this. Could ou either add a Total tax paid column, or perhaps invest the tax savings into norml investments when contributing to the RA.

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #3 on: May 26, 2015, 09:12:21 am »
Phew that's quite a serious spreadsheet. I'm trying to get my head around the numbers. I can't figure out why the TFSA then RA beats the RA then TFSA when you're in the 41% tax bracket, with performance being the same. Is it perhaps that even though you've got more cash available going the RA route, this isn't invested, while the post investment tax savings in the TFSA is, making it look like the TFSA has you better off financially?

I'm trying to think of a way your spreadsheet could illustrate this. Could ou either add a Total tax paid column, or perhaps invest the tax savings into norml investments when contributing to the RA.

have to agree with you - its quite an eye opener if you punch in different numbers ( i just updated the OP with a new version)

On lower salary brackets "TFSA >RA>Equities", is winning, especially if you only invest a small % of your salary.
once you go a bit higher and invest more than a third, "TFSA >Equities" starts to win.
my personal feeling (as you have posted a few times), is to max TFSA and RA's then go into equities. It gives you a safeguard , which is also quite important.

*Update version 1.3*
Think i discovered the gremlin, well part of it at least. found a broken formula on the TFSA>RA and RA>TFSA worksheets. OP is updated
« Last Edit: May 26, 2015, 09:55:07 am by erwintwr »

XXXXX

  • I've just arrived
  • *
  • Posts: 27
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #4 on: May 26, 2015, 07:48:25 pm »
Very impressive.  I've often though of doing the same, but i never got around to it.  So well done.

My first thought was how you treated the eventual taxation of a RA, and i didn't see it your spreadsheet.  But then saw your differential Gain rates, so i'd guess it was there.  Any chance you can confirm the logic  around your gain rates, and how you considered the eventual taxation of a RA. 

Regards

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #5 on: May 26, 2015, 08:04:33 pm »
Very impressive.  I've often though of doing the same, but i never got around to it.  So well done.

My first thought was how you treated the eventual taxation of a RA, and i didn't see it your spreadsheet.  But then saw your differential Gain rates, so i'd guess it was there.  Any chance you can confirm the logic  around your gain rates, and how you considered the eventual taxation of a RA. 

Regards

thank you thank you :) - loved the challenge ;)

wrt to the taxation -

*available cash is pushed into each vehicle until the cap is reached (30k for TFSA and 15% for RA), after which the remainder is pushed into the Equity section. thus each gain is calculated separately, and thus i could apply tax to each
*RA tax was simplified as per the SARS page : First third is taxed ( <300,000 (18%) , < 600,000(54k +27%) and >600,000(135k+36%)) with different levels each. The other two thirds i taxed at your nominal tax rate as configured.
*all things equal - Equities is also taxed on capital gains based on the nominal tax rate provided.


i know taxation will be a little bit different at retirement age, but my vision for this calculator was to provide a ten year overview.


Hope this answers your question?

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #6 on: May 27, 2015, 04:56:32 pm »
new version uploaded

updated some tax calculations - thus affecting results quite drastically

*edit* - tax fixes made a big difference - screenshots no longer accurate :)
« Last Edit: June 05, 2015, 09:59:15 pm by erwintwr »

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2299
  • Karma: +38/-2
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #7 on: May 27, 2015, 06:29:18 pm »
Note those numbers make sense, great work. You're right though, etf's are likely to outperform RA's as RA's can only hold 75% equities, and will most likely have far higher fees too.

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #8 on: May 27, 2015, 08:36:35 pm »
Note those numbers make sense, great work. You're right though, etf's are likely to outperform RA's as RA's can only hold 75% equities, and will most likely have far higher fees too.

but then there is a case like this.. RA wins even if it performs 5 to 7% lower


« Last Edit: May 28, 2015, 04:27:23 pm by erwintwr »

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #9 on: June 03, 2015, 06:15:00 am »
OP is updated. Fixed another tax bug :/
SARS ....just eish.

RA first is looking better though.

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #10 on: June 07, 2015, 03:02:52 pm »
Update to version 2.0
* major changes in tax tables - applied 10% increase on tax tables per year (current average since 2005) - this is configurable under inputs...
* added 20 and 30 year results sets as well
* 10 year result is based on tax for a ten year "draw" (year 15 tax is applied)
* 20 year result is based on tax for a twenty year "draw" (year 30 tax is applied)
* 30 year result is based on tax for a thirty year draw (year 45 tax is applied)

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #11 on: June 10, 2015, 11:59:00 am »
Update to version 3.0
Major functionality update - basically it is now a South African Financial Independence calculator. Most Inputs is customizable, including Age, Inflation, and current portfolio values. System will output 3 periods between your current age and 55 years, allowing you to see capital growth.


Can someone maybe recommend some financial /retirement draw down calculators out there? i would like to run simulations to compare values.

For now it looks quite accurate  - Any comments is welcome.


Basic operation :
  • income is invested as per inputs
  • investment is stopped at the configured FI years
  • draw-down is tested(eg first equity then TFSA(draw salary is current salary minus savings)
  • once 55 is reached draw capital is combined with RA, and max salary is drawn to reach 95
  • possible surplus salary at 55 is reported (after tax)
**Note1  If draw down pre 55  failed, salary will be shown as R0.00

Nivek

  • Sr. Member
  • ****
  • Posts: 277
  • Karma: +6/-1
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #12 on: June 10, 2015, 12:43:51 pm »
Excellent work  :TU: I'm trying to run the following figures:
Yearly pay (Before tax)   R 1 000 000,00
Pay increase per year(%)   6
Gain rate RA (%)   10
Gain rate TFSA (%)   12
Gain rate Equity (%)   12
"Invest perc of income
(after tax) (%)"   50
Limit RA contrib cap to (%)   15
Current Age (years)   40
Current RA portfolio   R 0,00
Current TFSA portfolio   R 30 000,00
Current Equity Portfolio   R 5 000 000,00

Why does it give me the results after 3.8, 7.5, 11.3 and 15 years?

If it's accurate, it looks like in this scenario you'd be FI somewhere between 3.8 and 7.5 years.

One thing which I think may be a mistake, using the figures above it ranks max equity higher than max TFSA then equity even though the gain rates are the same.

erwintwr

  • Jr. Member
  • **
  • Posts: 88
  • Karma: +6/-0
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #13 on: June 10, 2015, 12:58:51 pm »
Excellent work  :TU: I'm trying to run the following figures:
Yearly pay (Before tax)   R 1 000 000,00
Pay increase per year(%)   6
Gain rate RA (%)   10
Gain rate TFSA (%)   12
Gain rate Equity (%)   12
"Invest perc of income
(after tax) (%)"   50
Limit RA contrib cap to (%)   15
Current Age (years)   40
Current RA portfolio   R 0,00
Current TFSA portfolio   R 30 000,00
Current Equity Portfolio   R 5 000 000,00

Why does it give me the results after 3.8, 7.5, 11.3 and 15 years?

If it's accurate, it looks like in this scenario you'd be FI somewhere between 3.8 and 7.5 years.

One thing which I think may be a mistake, using the figures above it ranks max equity higher than max TFSA then equity even though the gain rates are the same.

*sulks at salary - i will be there in a few years i hope*
i have divided the difference between current age and 55 in 4 parts, thus resulting in (55-40)/4 = 3.8 years per result. you are welcome to modify the constants(analyze after year)  to 4, 5, 6 and 7 to see a more accurate result for those years. (year 6 seems to be the extreme limit with 1K surplus)


not sure if i follow your last statement? Inputting your values shows that RA/TFSA/Equity is higher? (112k surplus vs 67k maxing equity only after 7.5 years)
excel will highlight the bigger value green :)




Nivek

  • Sr. Member
  • ****
  • Posts: 277
  • Karma: +6/-1
    • View Profile
Re: TFSA vs RA vs Satrix - Calculator
« Reply #14 on: June 10, 2015, 02:45:30 pm »
*sulks at salary - i will be there in a few years i hope*

i have divided the difference between current age and 55 in 4 parts, thus resulting in (55-40)/4 = 3.8 years per result. you are welcome to modify the constants(analyze after year)  to 4, 5, 6 and 7 to see a more accurate result for those years. (year 6 seems to be the extreme limit with 1K surplus)

not sure if i follow your last statement? Inputting your values shows that RA/TFSA/Equity is higher? (112k surplus vs 67k maxing equity only after 7.5 years)
excel will highlight the bigger value green :)
I rounded down a little  >:D

Here's the query:

Results(FI After 15 years)            
Yearly Salary   "Max TFSA then Equity
(no RA)"   Max Equity only   Max TFSA then RA then Equity   Max RA then TFSA then Equity
RA (15%)   R 0,00   R 0,00   R 359 365,37   R 483 959,65
TFSA   R 152 760,08   R 12 603,98   R 153 099,74   R 147 385,83
Equity   R 5 952 262,70   R 6 211 969,35   R 5 380 981,96   R 5 280 140,85
Required   R 1 217 552,98   R 1 217 552,98   R 1 217 552,98   R 1 217 552,98
Total surplus (after tax)   R 4 498 042,92   R 4 597 112,03   R 4 206 445,16   R 4 185 992,94
"Total yearly surplus
(Inflation adjusted)"   R 1 746 296,55   R 1 784 758,62   R 1 633 088,17   R 1 625 147,90

As you can see, the total surplus is highest on equity only. I would have thought it would be highest on RA, TFSA then equity but it's lowest there.