Two examples of the 4-DEBT PAYMENTS graphic

OVERVIEW of the 4-DEBT PAYMENTS graphic: Debt Payments (real $/yr)

Below are two examples of the blue-tabbed 4-DEBT PAYMENTS graphic, which come from VeriPlan's "Sue and Sam Saver" tutorial.

You can download a free copy of this VeriPlan tutorial file using this link:

DOWNLOAD THE FREE VERIPLAN TUTORIAL HERE

Also, SEE THESE INVESTMENT COST EFFICIENCY ARTICLES elsewhere on The Skilled Investor website.

This 4-DEBT PAYMENTS graphic, which VeriPlan develops automatically for every projection, projects your annual debt repayment obligations according to your settings on the yellow-tabbed '5-Your Debts' worksheet.

On the '5-Your Debts' worksheet, you classify your debts as consumption-oriented or investment-oriented. Consumption-oriented debts represent past consumption that you have financed. Investment-oriented debts are those you take on with a rational expectation that they will enhance your human capital and/or portfolio assets.

Because VeriPlan uses real or constant purchasing power dollars with inflation extracted throughout your projections, your future debt payments related to your CURRENT debts will be discounted. Because your current debt re-payment obligations are stated in nominal dollars, VeriPlan uses a 3% inflation assumption to convert your future payments into real dollars.

If at any point in the future, your expenses would exceed your net income and would fully deplete your accumulated cash, bond, and equity financial assets, then VeriPlan automatically would begin to accumulate an "unfunded consumption debt" loan for you. On the orange-tabbed '10-Future Debt Tool' worksheet, you can set a projected loan interest rate for any such unfunded consumption debt. Were this situation to occur, then the required interest-only annual payment on this accumulated unfunded debt would display automatically on this '4-DEBT PAYMENTS' graphic. See the '10-Future Debt Tool' worksheet for more information.


The first tutorial graphic below shows a projection for Sue and Sam's lifetime debts when they pay industry average investment costs. VeriPlan automatically extracted the investment cost information that Sue and Sam provided for their investment asset portfolio on VeriPlan's yellow-tabbed assets worksheets. Sue and Sam pay investment costs that are about average for full service retail brokerage customers. The year-after-year cumulative and compounded lost investment earnings and asset growth due to these cost inefficiencies would dramatically undermine Sue and Sam's personal assets.




This second tutorial graphic shows Sue and Sam's revised projection with lower investment costs that they consider to be more reasonable. (All other projection assumptions and data in VeriPlan remain the same in these two scenarios. Only the level of investment costs changes.)

When Sue and Sam decide to pay reasonable costs, they switch on their reasonable cost assumptions in Section 4 of VeriPlan's orange-tabbed "6-Cost-Effectiveness Tool" worksheet. When Sue and Sam use their reasonable cost assumptions, this graphic projects that their debts would be paid off in their mid-60s.

When they pay higher industry average investment costs, VeriPlan projects that Sue and Sam would still pay off their debts by their mid-60s. However, since their investment costs were substantially higher and their lifetime investment returns were much lower, Sue and Sam's cash, bond, and stock assets would be gone in their mid-90s. Thereafter, VeriPlan would automatically accrue unfunded consumption principal and interest debt through age 100 to project that their financial assets are gone, but their living expenses would continue.