For the Affordability Calculator, you can choose the age range to simulate the payment term of the plan you would like to proposed to check how much your client can afford to set aside.
The calculator will calculate what's the maximum expenses that the client can afford to set aside, without bringing the cash savings level below $0 or below the Emergency cash amount.
You can see how the calculation is done from the system by following the steps below:
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Example 1 (if no Emergency Cash is set)
Start of Year Cash Balance: $30,000
Cash Account Interest Rate: 1%
Age range selected: Age 30 to 38 (Indicative as from Start of Age 30 to Start of Age 38)
No. of years: 8 years
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Age | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 |
| Start of Year Balance |
$30,000 | $50,500 | $61,105 | $56,666 | $47,133 | $37,504 | $43,939 | $29,228 |
| Net Cashflow |
$20,000 | $10,000 | -$5,000 | -$10,000 | -$10,000 | $6,000 | -$15,000 | -$10,000 |
| Cash Account Interest 1% |
1%*($30k+ $20k) = $500 |
$605 | $561 | $467 | $371 | $435 | $289 | $192 |
|
End of Year Balance |
$50,500 | $61,105 | $56,666 | $47,133 | $37,504 | $43,939 | $29,228 | $19,421 |
|
PMT Calculation* |
$50,000 |
$30,100* |
$18,516 | $11,493 | $7,729 | $7,072 | $4,012 | $2,321 |
*Example for Year 2's PMT calculation: PV=0, Rate=1%, Period=2, FV=$61,105, PMT= $30,100
Step 1: Calculate the PMT for each individual years's end of year balance.
Step 2: Determine the lowest PMT calculation amount.
In this example, the lowest figure is $2,321.
This means that, the Client can afford to set aside a maximum budget of $2,321/year for 8 years between age 30 to age 38, without bringing the Cash Savings below $0 and ensuring that no shortfall is being created (refer to simulation below).
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Age | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 |
| Start of Year Balance |
$30,000 | $48,156 | $56,394 | $49,564 | $37,616 | $25,548 | $29,519 | $12,321 |
| Net Cashflow |
$20,000 | $10,000 | -$5,000 | -$10,000 | -$10,000 | $6,000 | -$15,000 | -$10,000 |
|
Affordability Budget |
-$2,321 | -$2,321 | -$2,321 | -$2,321 | -$2,321 | -$2,321 | -$2,321 | -$2,321 |
| Cash Account Interest 1% |
1%*($30k+ $20k -$2,321) = $477 |
$558 | $491 | $372 | $253 | $292 | $122 | $0 |
|
End of Year Balance |
$48,156 | $56,394 | $49,564 | $37,616 | $25,548 | $29,519 | $12,321 | $0 |
|
Shortfall |
$0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
Example 2 (if Emergency Cash is set)
Start of Year Cash Balance: $30,000
Cash Account Interest Rate: 1%
Emergency Cash: $10,000
Age range selected: Age 30 to 38 (Indicative as from Start of Age 30 to Start of Age 38)
No. of years: 8 years
If an Emergency Cash is set, we will abstract the amount from the End of Year balance before applying the PMT calculation. (refer to example below)
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Age | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 |
| Start of Year Balance |
$30,000 | $50,500 | $61,105 | $56,666 | $47,133 | $37,504 | $43,939 | $29,228 |
| Net Cashflow |
$20,000 | $10,000 | -$5,000 | -$10,000 | -$10,000 | $6,000 | -$15,000 | -$10,000 |
| Cash Account Interest 1% |
1%*($30k+ $20k) = $500 |
$605 | $561 | $467 | $371 | $435 | $289 | $192 |
|
End of Year Balance |
$50,500 | $61,105 | $56,666 | $47,133 | $37,504 | $43,939 | $29,228 | $19,421 |
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Emergency Cash |
$10,000 |
$10,000 |
$10,000 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 |
|
Net. End |
$40,500 |
$50,105 |
$46,666 | $37,133 | $27,504 | $33,939 | $19,228 | $9,421 |
|
PMT Calculation* |
$40,099 | $25,714* | $15,248 | $9,055 | $5,339 | $5,462 | $2,639 | $1,126 |
*Example for Year 2's PMT calculation: PV=0, Rate=1%, Period=2, FV=$50,105, PMT= $25,714