Hi all,
New user, site is a great resource!
I am hitting an age (30s) where I am taking my retirement plan seriously and am trying to understand how to calculate/estimate CGT on shares over the long-term.
My goal is to build up an equity fund of app. €800k and use that to bridge the gap between early retirement at ~50 and receiving my deferred DB pension (plus ARF) at ~66 (subject to change).
So I initially built an excel model that is along the lines of;
Year; CashIn/Out; ROR; FundValue
1; 40,000 7% 42,800
2; 40,000 7% 45,796
etc.
The trouble I am having is working out the withdrawal + CGT into it from then on;
Year; CashIn/Out; ROR; CGT; FundValue
20 -50,000 4% ? ?
21 -50,000 4% ? ?
etc.
One way I have simulated is to multiply the ROR by a (1-CGT) percentage ie 4%*0.67 however that only holds true for 1 year, beyond which it undervalues the fund as unrealised gains mean the ROR is applied to a larger number.
Another cut-throat way is to apply 33% CGT to all withdrawals, but while prudent, is excessive I think and could mean the difference in years of early retirement.
I am not expecting to have exact numbers for how much CGT I will pay each year. Fundamentally I am looking to have the average yearly CGT in there and thus have a sense if my plan will work in the long-term (16 years) ie will I run out of money or not. I am aware that ROR are not the same each year and I plan to test the model against historical returns to build a further analysis on the likelihood of success, but feel I need to grasp the CGT calculations properly first.
My current attempt uses the follow structure based on my latest understanding of CGT & FIFO;
Year; ExpectedExpenses; TotalFundValue; NonGainFund; Gain; GainFund
Where the Gain is the TotalFundValue x ROR% and the GainFund is the cumulative gains year to year, leaving the NonGainFund as the cumulative input cash only (cost).
So, based on my understanding of FIFO, in year 1 of retirement if I sell shares to use as yearly expenses, after 15 years of growth I am likely selling shares that have experienced significant growth. I therefore take the ExpectedExpenses from the GainFund and divide by 0.67 to give the required withdrawal to leave the required expected expenses available. When the GainFund eventually gets to near 0 after about 10 years, I start using up the NonGainFund (my original cash invesment) and thus don't divide by the 0.67 as little to no CGT should be owed on original capital.
Am I in any way on the right track here? Or is there a simplified way of applying CGT to long-term projections for such a model?
Also, any opinions/comments on my overall strategy of having a "early-retirement" bridging fund going into a DB pension + ARF would be much appreciated.
Many thanks,
JP
New user, site is a great resource!
I am hitting an age (30s) where I am taking my retirement plan seriously and am trying to understand how to calculate/estimate CGT on shares over the long-term.
My goal is to build up an equity fund of app. €800k and use that to bridge the gap between early retirement at ~50 and receiving my deferred DB pension (plus ARF) at ~66 (subject to change).
So I initially built an excel model that is along the lines of;
Year; CashIn/Out; ROR; FundValue
1; 40,000 7% 42,800
2; 40,000 7% 45,796
etc.
The trouble I am having is working out the withdrawal + CGT into it from then on;
Year; CashIn/Out; ROR; CGT; FundValue
20 -50,000 4% ? ?
21 -50,000 4% ? ?
etc.
One way I have simulated is to multiply the ROR by a (1-CGT) percentage ie 4%*0.67 however that only holds true for 1 year, beyond which it undervalues the fund as unrealised gains mean the ROR is applied to a larger number.
Another cut-throat way is to apply 33% CGT to all withdrawals, but while prudent, is excessive I think and could mean the difference in years of early retirement.
I am not expecting to have exact numbers for how much CGT I will pay each year. Fundamentally I am looking to have the average yearly CGT in there and thus have a sense if my plan will work in the long-term (16 years) ie will I run out of money or not. I am aware that ROR are not the same each year and I plan to test the model against historical returns to build a further analysis on the likelihood of success, but feel I need to grasp the CGT calculations properly first.
My current attempt uses the follow structure based on my latest understanding of CGT & FIFO;
Year; ExpectedExpenses; TotalFundValue; NonGainFund; Gain; GainFund
Where the Gain is the TotalFundValue x ROR% and the GainFund is the cumulative gains year to year, leaving the NonGainFund as the cumulative input cash only (cost).
So, based on my understanding of FIFO, in year 1 of retirement if I sell shares to use as yearly expenses, after 15 years of growth I am likely selling shares that have experienced significant growth. I therefore take the ExpectedExpenses from the GainFund and divide by 0.67 to give the required withdrawal to leave the required expected expenses available. When the GainFund eventually gets to near 0 after about 10 years, I start using up the NonGainFund (my original cash invesment) and thus don't divide by the 0.67 as little to no CGT should be owed on original capital.
Am I in any way on the right track here? Or is there a simplified way of applying CGT to long-term projections for such a model?
Also, any opinions/comments on my overall strategy of having a "early-retirement" bridging fund going into a DB pension + ARF would be much appreciated.
Many thanks,
JP