**Question:**

I have a few questions about some inputs that I cannot resolve on my own. I am a new subscriber but I think I have everything figured out now except the below.

Is there a way to model a spousal loan? for example, if I have lent my spouse $1 Million at 1% until death there is a $10,000 deductible interest expense for one and interest income for the other.

I don't quite understand the "dividend yield" and "increase in earnings" fields in the economic forecast. If I input all the nominal equity asset class returns as 7% for example, what happens when I manipulate the other two variables? it seems to effect the Monte Carlo simulation significantly so I want to be more certain as to their meaning.

For the Monte Carlo simulation, how conservative are the input volatility? I am trying to get more comfortable on the simulation and how I manipulate the variables to get an 85% chance of success or a 35% chance (or everything in between).

**Answer:**

To model the loan, you could add an 'Other Income; of $10,000 per year for you, and a $10,000 interest expense on her budget.

The "dividend yield" adds a constant dividend on the share of assets invested in equities (based on the profile selected in 'Asset Mix for Projections' on the 'Options' page. So if you select 2% and have $100,000 in equities, it will add $2,000 in the following year of dividend income taxed assuming they are eligible dividends. In future years, it will be based on the market value of equities, so as they grow, so does the dividends.

The "increase in earnings" field in the economic forecast is an assumption for annual wage increase. So if you are not retired and earn $100,000 per year with a 3% annual increase in earnings, the program will calculate earnings of $103,000 next year and increase it by 3% each year up to retirement. This is the only purpose of this assumption. In turn, your annual earnings are used to estimate the CPP.

The increase in earnings and dividend rate are not subject to volatility in the simulation. In other words they are assumed to be constant.

The default volatility for each asset class are based on historical experience adjusted to recent trends. In a nutshell, cash and fixed income are assumed to be less volatile than historically, and equities are in line with their historical volatility (based on the last 20 years), with International equities experiencing the most volatility. These are revisited annually.

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