A Cheat Sheet for Financial Planning Computations

14 Pages Posted: 25 Feb 2014 Last revised: 7 Mar 2014

See all articles by Patrick Beaudan

Patrick Beaudan

Northern Trust Corporation; Emotomy

Date Written: February 24, 2014


This article represents working notes about algorithmic finance, designed as an introduction to the basic equations that drive financial planning algorithms. They focus on establishing closed form solutions to the problem of finding the maximum amount of money that an investor may withdraw from an investment account to ensure that a specified legacy amount is left behind at the end of one’s life expectancy. The impact of taxation is briefly discussed, along with an exact solution to the governing system of equations including general time functions representing contributions to and distributions from the investment account. An iterative method is presented that in practice exhibits fast convergence to a solution for target distribution amounts. We also examine how inflation is usually handled for financial planning and its impact on the results.

Keywords: financial planning, financial goals analysis

JEL Classification: C10, C63, G10, G31

Suggested Citation

Beaudan, Patrick, A Cheat Sheet for Financial Planning Computations (February 24, 2014). Available at SSRN: https://ssrn.com/abstract=2400844 or http://dx.doi.org/10.2139/ssrn.2400844

Patrick Beaudan (Contact Author)

Northern Trust Corporation ( email )

50 South LaSalle Street
Chicago, IL 60603
United States
415 839 5239 (Phone)

Emotomy ( email )

580 California Street
San Francisco, CA 94104
United States

HOME PAGE: http://www.emotomy.com

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