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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11829
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Brokerage ??? How much interest can be gained with 900.00 in

Customer Question

brokerage ??? How much interest can be gained with 900.00 in trust fund annually?? what principle figure to get 70K interest/dividends annually- (stocks & bonds)
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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Looks like no one's picking this one up, so i'll try to help...

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To get to an annual payout of 70,000, there are two variables, of course (principal and interest)

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There's also the question of whether you'd like to use the principal, and if so, at what life expectancy or other time period).

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If we assume NO use of principal, then that becomes a simple interest problem ... I'll use 7% as an assumed rate to make the point here:

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At 7% you'd need 1,000,000 of principal in the trust to get 70,000 per year WITHOUT using any OF the principal.

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Then if we talking about USING principal, then we need to add a time frame in which that principal would be used up.

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SO, assuming the same interest rate, and adding the assumption that we want the principal to last 20 years before running out, (you can use any financial calculator) ...

We'll be solving for PV (Present value) where i (interest) is 7%, n n(number of years is 20), and FV (Future Value) is zero, and PMT(Payment is 70,000)

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PV, or present value, must equal 741,581.

Said differently, if you deposit 741,581 in the trust today, and get 7% return on that principal, and take out 70,000 per year, the principal will last 20 years before running out.

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Hope that helps to at least provide a framework.

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Let me know if you have questions.

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Lane

Expert:  Lane replied 1 year ago.

If you can let me know more about what you meant by "900 in trust fund annually," maybe I can give you a more specific answer.

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But using time value of money principles, the 900 would be an offset to the 70,000 if you are saying that you contribute 900 annually.

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Let me know

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Lane

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