Question

Parker is 50 and wants to retire in 15 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 95. He currently has a salary of $120,000 and expects that he will need about 65% of that amount annually if he were retired. He can earn 9 percent in his portfolio while he is working. However, he expects that he will only earn 7 percent in his portfolio during retirement. He expects inflation to continue at 3 percent. Parker currently has $350,000 invested for his retirement. His Social Security benefit in today's dollars is $30,000 per year at normal age retirement of age 67. His Social Security benefit will be reduced by 6 2/3 percent for each year he begins collecting before full age retirement. How much does he need to save each year to meet his retirement goals?

a) $2,465

b) $2,987

c) $4,975

d) $6,855

Answer 1

Annual Salary		120000.00
Retirement salary in age 65		78000.00
Social security benefit at age 67		30000.00	in todays dollar
Social security benefit at age 65		25999.80	in todays dollar
So net amount required from lumpsum		52000.20	per annum
Age	Amount Required
66	83445.06		NPV @ 7%	$1,420,938.97
67	85948.41
68	88526.86		Required savings	$4,975
69	91182.67
70	93918.15		Correct c) $4,975
71	96735.69
72	99637.76
73	102626.89
74	105705.70
75	108876.87
76	112143.18
77	115507.47
78	118972.70
79	122541.88
80	126218.13
81	130004.68
82	133904.82
83	137921.96
84	142059.62
85	146321.41
86	150711.05
87	155232.38
88	159889.36
89	164686.04
90	169626.62
91	174715.42
92	179956.88
93	185355.58
94	190916.25
95	196643.74