If a special receipt is entered in today's dollars, does it increase by the rate of inflation or investment return?

I have a non-qualified deferred compensation that is distributed quarterly, and the distribution depends on the value of the underlying securities. I am trying to figure out the best way to input this into ESPlanner.


dan royer's picture

Hmm. Well, for one you annualize it, so multiply by four. That's easy I guess. This sounds like it's taxable so you'd enter it as taxable special receipt. I suppose it's safe to assume some reasonable rate of return such as keeping pace with inflation? If you feel it's just going to keep pace with inflation--i.e., 0% real, then enter in today's dollars with 0% real return. If you feel it could outpace inflation--say inflation is 3% and you think it might earn 4%--then enter it as growing y 1%. So enter the first year only, then at the bottom the number of years it would continue, and the growth rate.

BRDaniels's picture

Thanks but how will this be treated in a Monte Carlo simulation, which I believe is the best way to really get a handle on my financial situation?

dan royer's picture

It will not be treated as an asset with return and variance like your retirement assets and regular assets, but like everything else in your model, it will factor into the living standard results you see when you run MC if you want to run MC. It doesn't factor in because you don't have a pool of money invested--you just have the promise of some quarterly payments for the rest of your life. I'd just run my model with it growing at some conservative amount like 0% and then again at 1 or maybe 2% if that's possible and see how much difference it makes.

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