Question

Barry and Samantha are starting to take their retirement planning seriously. They are both 51 and plan to retire in 15 years at the age of 66. They expect to live 20 years in retirement (a life expectancy of 86). Between their 401k and IRA accounts, they currently have $132,400 in retirement savings.

They currently have a combined income of $85,000 per year and expect to be able to live comfortably in retirement with 80% of their current purchasing power. They expect inflation to be 2.0% per year for the rest of their lives. They also expect to earn 10% per year on their investments, both now and in retirement.

Conduct an analysis of their retirement planning needs and provide them with a professionally written letter. Use the rubric provided when preparing the letter. In the letter and attached schedules provide information that answers the following questions. Please include a description of the relevant assumptions and any explanatory comments that make the results easier to understand.

1. What amount of annual income will they need (after adjusting for inflation) in each of the twenty years of retirement to have the purchasing power of 80% of their current income?

2. Assuming they will continue to earn 10% on their investments, how much money will they need to have in their retirement accounts when they retire so that it will provide the twenty years of income?

T3. aking into account what they currently have in savings, how much will they have to save each month to meet their retirement needs?

4. Sensitivity analysis: Redo the analysis assuming that they only earn 8% on their investments, instead of 10%. Determine the needed amounts so they have the money they need in retirement.

Note: Assume that all payments will be made at the end of the year (ordinary annuity).

Answer 1

Catalog 1 - Span and Survival Expectancy

present Years

51 years

the following Retirement Age 66 years

Number of years to retreat is gathering years 15 years

Living Expectancy iis 86 years

Number of years following retreat is worth years 20 years

Catalog 2 - Estimate of menstrual maintenances for gathering time through 10% recovery price

Rate of return (ROR ) during gathering years of 15 years 10%

Expected ROR is later retreat is 10%

increase rate is 2%

Inflation got set return through retirement (((1+10%)/(1+2%))-1)x100 is 7.843%

present buying power through year is $85,000

Required post-retirement yearly expense @80% of present acquiring power $68,000

Increase rate is 2%

Anniversary investment while a period of regression, set for increase ($68,000((1+2%)^20years)) is

$1,01,044

number of ages behind departure is 20

Inflation-adjusted revenue while the period of recession 7.843%

Corpus needed on retreat to secure seasonal payments for superannuation period $10,03,768

present corpus expense $1,32,400

The budgeted expense of contemporary corpus at source of regression, customized for 10% repayment p.a. during aggregation time $5,53,068

Therefore, additional savings needed, to guarantee corpus expense of $4,50,700

The present price of additional savings, settled for 10% return p.a. throughout collection time $107,894

Consequently, monthly economies needed at instant at 10% return rate $8,991

Catalog 3 - Estimate of menstrual savings for gathering time at 8% RoR

ROR during aggregation time of 15 years 8%

As Outlook is ROR 8%

Increase rate 2%

Increase modified ROR (((1+8%)/(1+2%))-1)x100 x 5.882%

present buying power by yearly is $85,000

Expected post

retreat yearly expense @80% of present buying power $68,000

Inflation rate 2%

Annual expense while time of

retreat, set for increase is ($68,000((1+2%)^20years))

$1,01,044

Number of years later on

retreat is 20

increase set for return while period of

retreat 5.882%

Corpus required on

retreatto make yearly patout for

retreat time $11,70,156

present corpus payment is $1,32,400

as thought the payment of present corpus at source of

retreat, settled for 8% return per annum through addition time $4,19,995

Therefore, additional savings needed , to make corpus price $7,50,161

The near value of additional savings, settled for 10% return p.a. throughout addition period $236,482

so, monthly savings needed at instant at 10% return rate $19,707

Sensitivity to changeROR IS = ($19707-$8991)X1%/2% = $5358 P/month