Question

Jordan is 55 and wants to retire in 12 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 97. He currently has a salary of $100,000 and expects that he will need about 82% of that amount annually if he were retired. He can earn 9 percent in his portfolio and expects inflation to continue at 3 percent. Jordan currently has $325,000 invested for his retirement. His Social Security benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. How much does he need to save each year at year end to meet his retirement goals?

1. $6,245.

2. $7,659.

3. $8,432.

4. $9,252.

Answer 1

Given: Current age of Jordan is 55 years and he wishes to retire in 12 years.

He estimates that he will live to age 97.

Hence, his savings in the next 12 years should help him meet his retirement goals. He expects a salary of $ 100,000 per year and he will need 82% of the amount annually in case he retires. i.e. for 12 years, he will need $82000 annually during his retirement tenure for the next 30 years.

He has made an investment of 325,000 which will give a return of 9% on his portfolio and inflation is at 3%.Hence, the returns he can expect is 325,000*0.09*0.03=$ 877.5

Social security benefit is $ 30,000 per year which Jordan will get as he retires.

The salary amount will also be subject to inflation. Hence $ 18,000 that is needed for expenses at 3% inflation is $540 and expenses of $1800

Hence, the total amount that should be saved during his working period to meet his retirement goals is,

82,000+30,000+877.5+540+1854=$111024

Each year, the savings would be 111024/12=$ 9252