Military Education Department
Personal Financial Management (PFM)

Taxes can have a big effect on the amount of money that accumulates in an account, especially when money is left in an account for a long period of time. In a tax-sheltered account (for example, an IRA account), you do not have to pay taxes on interest until you actually withdraw the interest from the account. Therefore you can earn interest on all of the interest you earn. In a normal account (a savings account, CD, etc.) you pay taxes on the interest each year. Therefore you earn less.

This calculator shows you how much money you can make by leaving a sum of money in an account at a certain interest rate. It helps you to understand the difference that tax-sheltered compounding can make, and in addition shows you the effect of inflation. Enter the amount of money that you wish to deposit initially, the expected interest rate, and the expected inflation rate. The calculator will show you the amount that will accumulate in the account over different time spans both with and without taxes. It will also show you how much money that initial amount will buy in the future because of inflation. That way you can see if an investment actually grows (beats inflation).

Amount to deposit - Enter the amount of money that you will initially deposit in the account
Interest rate - Enter the interest rate. If you wish to use a 5.0% interest rate, enter 5.0. As of June 30, 1996, here are some typical rates: passbook savings account: 2.5%; one year CD: 3.55%; stock market average return: 10%.
Federal and state tax rate - Enter the sum of your federal and state tax rates. For example, if you are in the 23% federal tax bracket and you state has a 7% income tax rate, enter 30 here. If you have no idea, use 30.
Inflation rate - Enter the expected inflation rate over the period of time. If you have no idea, try 4% (enter 4).
Click this button to calculate the account value.

Year	Value with tax-free compounding	Value with taxed compounding	Inflation
1 year value - This is the total value of your account at the end of 1 year.
2 year value - This is the total value of your account at the end of 2 years.
3 year value - And so on...
4 year value
5 year value
10 year value
15 year value
20 year value
30 year value
40 year value

It is particularly interesting to note the massive difference between the taxed and non-taxed numbers after 20 or 30 years. There are several ways to save money that make use of completely tax free compounding:

in a 401(k) account
in an IRA account
by purchasing individual growth stocks that do not pay dividends or that reinvest dividends
by using certain types of annuities or life insurance

The inflation column shows you the effect of inflation on your initial deposit. For example, if you deposit $1,000 in an account and the inflation rate is 4%, then the value in the inflation column will be $1,040 after one year. This means that in one year it will take $1,040 to buy what costs you $1,000 to buy today. If your investments do not at least exceed the rate of inflation, you are losing money. If you look at the account value and it is less than the value in the inflation column over time, then your investment is actually losing money. Taxes often have that effect on lower-performing investments like savings accounts and CDs.

Note: These calculations are estimates and are only provided to give you some general guidelines , although we believe the calculations to be correct, we do not guarantee the results. For more information or assistance with your personal finances, Please consult your financial advisor or lending institution before making any final financial decisions.

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Counseling

If you have questions or need assistance after graduating from the SDCC Military PFM course contact one of the counselors listed below:

Army - E-mail

Anthony Powell – Ft. Bliss, TX
Wk Ph: 915-568-4453,
DSN: 978-4453
Email: anthony.powell1@us.army.mil

Navy - E-mail

Mike Kempf – Pensacola, FL
Wk Ph: 850-452-6817,
DSN: 922-3228
Email: mikekempf@bellsouth.net

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HOME REFINANCE AND MODIFICATION OPTIONS

General Information

SDCC has articulated the Navy PFM course for one college credit. Navy personnel who have graduated from the Navy PFM course qualify. Typically, it can be difficult to apply one credit and meet the requirements of a three credit semester long course at most colleges and universities. With that in mind, we have taken the initiative of developing a two credit online course that will be available upon completion of the Navy PFM course. Sailors who have completed the requirements of both the Navy PFM course and the online PFM course will be given credit for completing the three credit Consumer Studies 110 course offered by San Diego City College and Mesa College and transferable to any Servicemembers Opportunity College (SOC).

For additional information or to see if you qualify contact a PFM counselor.

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Michael Steffens
Phone: 847-746-2790
Fax: 847-746-2791

Military Education Department Personal Financial Management (PFM)

PFM Contact Information Darrell Himmelspach dhimmels@sdccd.edu Phone: 847-746-2790 Fax: 847-746-2791

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How is your financial fitness?

You can find out by taking the quizzes below Financial Fitness Quiz or Financial Fitness Checkup

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Taxed and Non-taxed Compounding Calculator