Question

In: Finance

Bill​ (age 42) and Molly Hickok​ (age 39), residents of​ Anchorage, Alaska, recently told you that...

Bill​ (age 42) and Molly Hickok​ (age 39), residents of​ Anchorage, Alaska, recently told you that they have become increasingly worried about their retirement.​ Bill, a public school​ teacher, dreams of retiring at 62 so they can travel and visit family.​ Molly, a​ self-employed travel​ consultant, is unsure that their current retirement plan will achieve that goal. She is concerned that the cost of living in Alaska along with their lifestyle have them spending at a level they could not maintain. Although they have a nice income of more than $100,000 per​ year, they got a late start planning for​ retirement, which is now just 20 years away. Bill has tried to plan for the future by contributing to his​ 403(b) plan, but he is only investing 6 percent of his income when he could be investing 10 percent. Use what they told you along with the information below to help them prepare for a prosperous retirement.

​Molly's income

$79,000

​Bill's income

$42,500

Social Security income at retirement

$2,550​/month

Current annual expenditures

$72,500

​Bill's Roth IRA

$20,500

​Bill's 403(b) plan

$47,400

Marginal tax bracket

25 %

4. If the Hickoks want their retirement income to increase annually by 3 percent then they need to increase the annual additional funding requirement to reach their income goal of to what amount?. ​(Round to the nearest​ dollar.)

Solutions

Expert Solution

cur_savings_6% cur_savings_10% Extra Savings Total Savings with 6% Total Savings with 10%
Aftr_tax
Molly's Income 79000 59250 3555 5925 2370 129046.3005 52931.27895 163983.1779 88218.79824
Bill's Income 42500 31875 1912.5 3187.5 1275 181977.5795 252201.9762
Social_Sec_incm/mnt 2550
Annual_SSI 30600 Savings Benefits
Current exp_annual 72500 5467.50 181977.58
Bill IRA 20500 9112.50 252201.98
Bill 403B Plan 47400 3645.00 70224.40
Tax Bracket 25%
Molly 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
6% Savings 3555.0 8401.7 13393.7 18535.5 23831.6 29286.5 34905.1 40692.3 46653.0 52792.6 59116.4 65629.9 72338.8 79249.0 86366.4 93697.4 101248.3 109025.8 117036.6 125287.7
4740 129046.3005
10% Savings 5925.0 12027.8 18313.6 24788.0 31456.6 38325.3 45400.1 52687.1 60192.7 67923.5 75886.2 84087.8 92535.4 101236.5 110198.6 119429.5 128937.4 138730.5 148817.4 159207.0
5925 163983.1779
Bill
6% Savings 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
1912.5 3882.4 5911.3 8001.2 10153.7 12370.8 14654.5 17006.6 19429.3 21924.7 24494.9 27142.3 29869.0 32677.6 35570.4 38550.0 41619.0 44780.1 48036.0 51389.6
1912.5 52931.27895
10% Savings
3187.5 6470.6 9852.2 13335.3 16922.9 20618.1 24424.1 28344.3 32382.2 36541.1 40824.8 45237.1 49781.7 54462.7 59284.0 64250.1 69365.1 74633.5 80060.0 85649.3
3187.5 88218.79824

With an increase in annual Savings of 3645$ from 5467.5$ Bill and Molly Both Can save 70224.5$ more

jeff jeffy answered 9 months ago
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