How do you calculate my Financial Plan's Effective Years Until End?

A Financial Plan's Effective Years Until End is an important input in deciding what investment allocation we recommend for your portfolio.  We calculate this number using the following formula:

The number of years until your earliest goal starts

PLUS

A discounted number of years that you need your after-tax goal amounts

The number of Years Until Goal Start is pretty straightforward.  If your goal starts at age 65, and you are 30 years old, then the number of years until your goal starts is 35.

The discounted number of years that you need your after-tax goal amount is less intuitive.  We start by taking the number of years you will need your goal.  For example, if your goal starts at 65 and ends at age 95, then you need your goal amount for 30 years.  However, because of the time value of money, we need to discount some of those years in the future.  A goal amount needed today should be weighted more than a goal-amount needed 30 years from now because a dollar today is worth more than a dollar 30 years from now.  We use a 3% discount rate (our inflation assumption) in the following formula to determine the discounted number of years that you need your after-tax goal amount:

(1 - ( 1.03 ^ -YearsNeeded ) ) / 0.03 )

Rounding down gives us the discounted number of years needed:

Next, we need to add back in the Years Until Goal Start discussed earlier.  Please see the table below for the Effective Years Until Goal End using both the Years Until Goal Start and Years Goal is Needed:

 Effective Years Until Goal End: