A formula to help
 offset inflation and tax?

According to demographics, people in the United States are getting older. With new medical advances it is not uncommon to see many people living into the 100's.  

More people are retiring at an early age or are disabled and forced to retire.  Their monthly fixed income is now either social security, a pension, or saving. Unless the fixed income is supplemented, the erosion factor of inflation creates major financial problems in future years. 

This erosion factor could cause or has caused many person's life style to change for the worse. 

Since social security and other income benefits may barely meet monthly requirements, many of the retirees or those on disability are looking for ways to increase their income.

Many have turned to gambling as a  solution. If you walk into the casinos during the morning or mid afternoon, you will find that the majority of the people gambling are those that have retired or are disabled.  

The casinos offer the ability of making money without reporting the income for taxes. (One exception, The person will be issued a 1099 for jackpots won on  slot machines totaling over $1199.)  

Rules To Live By If You Decide To Gamble:

1  Evaluate the games for the best payout with the lowest risks.

2  Thoroughly learn the games before playing.

3 The money used for gambling should be discretionary.

4  Should you become addicted to gambling contact "Gamblers    Anonymous." 
 

The Costs Of Inflation

Inflation compounds and is taxable

Taxes, insurance, and other charges erode our buying power. When you are unable to work or retire you must invest just to keep up with inflation, otherwise your life style could change for the worse.  If you work, and your salary does not increase to keep up with inflation, your life style is also in jeopardy. 

What is the  "Break Even Against Inflation?"

I created a system to compute the expense of inflation. You will be able to use the computed amount to calculate how much extra money you will need, just to keep up your lifestyle.  

I will also use the same formulas to calculate the eroding of a fixed income.

The formula will have the capability to adjust to any inflation factor and to the different federal tax brackets.

At the present time, (2003), the inflation factor is calculated
at about 2%.

Using a MARKUP for calculating the "Breaking Even Against Inflation."

(A markup is a technique used by businesses to create a selling price, using the COST PRICE of a product to determine a profit.)

The calculations:

Take the current inflation rate (whatever that is), and add 9% for every tax bracket.

Example:
If you are in the 1st tax bracket
add 9% (plus) the inflation rate.  
If the inflation rate is 2% --- 9% (plus) 2% = 11%
If the inflation rate is 3% --- 9% (plus) 3% = 12%
If the inflation rate is 4% --- 9% (plus) 4% = 13%

If you are in the 2nd tax bracket
add 18% (plus) the inflation rate.
If the inflation rate is 2% --- 18% (plus) 2% = 20%
If the inflation rate is 3% --- 18% (plus) 3% = 21%
If the inflation rate is 4% --- 18% (plus) 4% = 22%

If you are in the 3rd tax bracket
add 27% (plus) the inflation rate.
If the inflation rate is 2% --- 27% (plus) 2% = 29%
If the inflation rate is 3% --- 27% (plus) 3% = 30%
If the inflation rate is 4% --- 27% (plus) 4% = 31%

If you are in the 4th tax bracket
add 36% (plus) the inflation rate.
If the inflation rate is 2% --- 36% (plus) 2% = 38%
If the inflation rate is 3% --- 36% (plus) 3% = 39%
If the inflation rate is 4% --- 36% (plus) 4% = 40%

If you are in the 5th tax bracket
add 45% (plus) the inflation rate.
If the inflation rate is 2% --- 45% (plus) 2% = 47%
If the inflation rate is 3% --- 45% (plus) 3% = 48%
If the inflation rate is 4% --- 45% (plus) 4% = 49%

NOW                                                                                              Home

Subtract the resulting percentage from 100%.

Example:
1st tax bracket and the inflation rate is 2%---
100% (minus) 11% = 89%

2nd tax bracket and the inflation rate is 2%---
100% (minus) 20% = 80%

3rd tax bracket and the inflation rate is 2%---
100% (minus) 29% = 71%

4th tax bracket and the inflation rate is 2%---
100% (minus) 38% = 62%

5th tax bracket and the inflation rate is 2%---
100% (minus) 47% = 53%
 

1st tax bracket and the inflation rate is 3%---
100% (minus) 12% = 88%

2nd tax bracket and the inflation rate is 3%---
100% (minus) 21% = 79%

3rd tax bracket and the inflation rate is 3%---
100% (minus) 30% = 70%

4th tax bracket and the inflation rate is 3%---
100% (minus) 39% = 61%

5th tax bracket and the inflation rate is 3%---
100% (minus) 48% = 52%

1st tax bracket and the inflation rate is 4%---
100% (minus) 13% = 87%

2nd tax bracket and the inflation rate is 4%---
100% (minus) 22% = 78%

3rd tax bracket and the inflation rate is 4%---
100% (minus) 31% = 69%

4th tax bracket and the inflation rate is 4%---
100% (minus) 40% = 60%

5th tax bracket and the inflation rate is 4%---
100% (minus) 49% = 51%

NOW                                                                                                     Home

Divide the current inflation rate by the percentage.
(Move the decimal point 2 positions to the left)

2% inflation 1st tax bracket
   2 divided by  .89 = 2.25 (break even against inflation)
2% inflation 2nd tax bracket
   2 divided by  .80 = 2.50 (break even against inflation)
2% inflation 3rd tax bracket
   2 divided by  .71 = 2.82 (break even against inflation)
2% inflation 4th tax bracket
   2 divided by  .62 = 3.23 (break even against inflation)
2% inflation 5th tax bracket
   2 divided by  .53 = 3.77 (break even against inflation)

3% inflation 1st tax bracket
   3 divided by  .88 = 3.41 (break even against inflation)
3% inflation 2nd tax bracket
   3 divided by  .79 = 3.80 (break even against inflation)
3% inflation 3rd tax bracket
   3 divided by  .70 = 4.29 (break even against inflation)
3% inflation 4th tax bracket
   3 divided by  .61 = 4.92 (break even against inflation)
3% inflation 5th tax bracket
   3 divided by  .52 = 5.77 (break even against inflation)

4% inflation 1st tax bracket
   4 divided by  .87 = 4.60 (break even against inflation)
4% inflation 2nd tax bracket
   4 divided by  .78 = 5.13 (break even against inflation)
4% inflation 3rd tax bracket
   4 divided by  .69 = 5.80 (break even against inflation)
4% inflation 4th tax bracket
   4 divided by  .60 = 6.67 (break even against inflation)
4% inflation 5th tax bracket
   4 divided by  .51 = 7.84 (break even against inflation)

As inflation increases, the formula still works.

The formula can be used to calculate the 
"break even against inflation" 
For anyone that works on a salary.

For those on a fixed income the formula will calculate the new inflation monthly expense, 
and the eroded buying power of your fixed income.

Example: 
(Move the "break even against inflation" decimal point 2 positions to the left)
then add that calculated dollar to the monthly income.
That would be your required monthly expense increase next year.

1st tax bracket-- inflation 2% --  monthly income $4000.00
Multiply $4000.00 by .0225 = $90 per month.
Required monthly expense increase next year = $4090.

2nd tax bracket-- inflation 2% --  monthly income $6000.00
Multiply $6000.00 by .0250 = $150 per month.
Required monthly expense increase next year = $6150.

3rd tax bracket-- inflation 2% --  monthly income $8000.00
Multiply $8000.00 by .0282 = $225.60 per month.
Required monthly expense increase next year = $8225.60.

4th tax bracket-- inflation 2% --  monthly income $10000.00
Multiply $10000.00 by .0323 = $323 per month.
Required monthly expense increase next year = $10325.

5th tax bracket-- inflation 2% --  monthly income $12000.00
Multiply $12000.00 by .0377 = $452.40 per month.
Required monthly expense increase next year = $12452.40.
 

For those on a fixed income the cost of buying has increased,
therefore You will not be able to buy as much as you did the previous year.  
Your buying power will decrease by the monthly expense.   

Next year if you are in the 1st tax bracket and your fixed income is $4000,  your money will only have a buying power of $3910.

Next year if you are in the 2nd tax bracket and your fixed income is $6000,  your money will only have a buying power of $5850.

Next year if you are in the 3rd tax bracket and your fixed income is $8000,  your money will only have a buying power of $7774.40.

Next year if you are in the 4th tax bracket and your fixed income is $10000,  your money will only have a buying power of $9675.

Next year if you are in the 5th tax bracket and your fixed income is $12000,  your money will only have a buying power of $11547.60.

Since inflation compounds, look what happens to  the value of your dollar from one year to the next.                          Home
 

Two years from now If the inflation stays the same and you are in the 1st tax bracket, we now use the expense requirement of $4090 (times) .0225 = $92.03

Two years from now the monthly expense requirement is
$4090 (plus) $92.03 = $4182.03. 

Now, subtract each months erosion of inflation.

(in the example for two years and the 1st tax bracket
$90 for one year and $92.03 the second year = $182.03)

Two years from now and you are in the 1st tax bracket and your fixed income is  $4000,  your money will only have a buying power of $3817.97
or $4000 (minus) ($182.03)

What happens if the inflation rate rises to 4% two years from now
and you are in the 1st tax bracket.

(Move the "break even against inflation" decimal point 2 positions to the left)

$4090 (times) .0460 = $188.14

Your monthly expense two years from now is
$4090 (plus) $188.14 = $4278.14.

Now you have to subtract each years erosion of inflation.

(in the example for two years
$90 for one year and $188.14 the second year = $278.14)

Two years from now if your fixed income is $4000, your money will only have a buying power of $3721.86
or $4000 (minus) ($278.03)

How long would it take for a person on a fixed income 
to run out of money?

If the inflation rate increases or you move into a different tax bracket, the expenses increase. Those that are on a fixed income, must do something to improve or maintain their same life style.  

If you are looking for an increase in salary, the formula will assist you in asking for the appropriate moneys necessary to "break even against inflation."

What each of you have to do is determine if you want your life styles to 
change for the worse, or take the risk for a better lifestyle. 
You have had risks during your lifetimes and you should 
carefully think about your options.

Meyer Bendavid
Craps Coach