lowering nominal rate of return on regular assets
Submitted by morgancharles@e... on Fri, 10/14/2016 - 10:49
Without changing anything else, when I lower the nominal rate of return on my regular assets (say from 6% to 4%), my smoothed standard living for adult (and thus discretionary spending) goes up! And the more I lower the nominal rate, the higher it goes up.
That seems very odd. Can you explain? thank you. Charlie
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ChrisCowles
Sat, 10/15/2016 - 10:37
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With the higher nominal
With the higher nominal return, is there a point where regular assets drop to zero in some future year?
Mike OConnor
Sun, 10/16/2016 - 09:20
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Charles,
Charles,
The nominal rate of return on regular assets is also used for the cost of borrowing.
So, if you have a lot of borrowing, reducing the cost of borrowing will increase your standard of living. Look for negative balances in the Regular Assets report.
Also, temporarily change maximum indebtedness to zero, rerun, and you'll see the opposite effect.
Alternatively, change the rates of return for retirement accounts, but not for regular assets.
morgancharles@e...
Sat, 11/05/2016 - 08:57
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Chris and Mike, many thanks.
Chris and Mike, many thanks. It makes sense now. I do wonder why this marvelous software doesn't use a separate calculation for rates on debt. My regular assets may earn, say, 6%, but my voluminous loan debts (about $500,000 for colleges for my daughters) are only at 3.9%.
Anyway, you guys are great help... thanks again. Charlie