Question

Mini case #1 - Retirement Planning

This assignment is to be completed in Excel. When completed, submit the exercise by the due date in Blackboard (BB) and Attach a copy of the excel spreadsheet.

Case Narrative:

Ann E. Belle is age 45 and plans to retire in 20 years (at age 65). She has retirement savings in a mutual fund account, which has a current balance of $150,000 (Ann does not plan to add any additional money to this account). Also, Ann opened a 401K retirement account with her new employer and will contribute $15,000 per year into her 401K until retirement.

• If Ann’s mutual fund account grows at an annual rate of 8.0% how much money will Ann have in her mutual fund account at age 65?

• If Ann’s 401K account grows at an annual rate of 8.0% per year, how much money will Ann have in her 401K account at age 65?

• What is the total investment balance of Ann’s retirement account at the age of 65?

• At retirement, Ann plans take the investment balance from her mutual fund account and the balance from her 401K account and combine them into an IRA account. To minimize risk, her IRA account will invest in more conservative securities. As a result, Ann anticipates her annual IRA returns to be about 5.0% during retirement. While in retirement, Susan plans to withdraw $100,000 per year from her IRA account over the next 25 years. Is this possible? Explain why or why not?

Answer 1

(i) Balance in Mutual fund Account (Age 45) = $ 1,50,000

Growth rate = 8%

Hence, amount at the time of retirement (at Age 65) = Persent Value * PVAF(8%, 20yrs)

= $ 150000 * 9.8181

= $ 14,72,715

(ii) Amount to be deposited in Bank Account annualy = $15,000

Rate of Interest = 8%

Hence, amount at the time of retirement (at Age 65) = Annual Depost * PVAF

Year	Amount Deposit($)	PVAF	Future Value
1	15000	9.8181	1,47,271
2	15000	9.6035	1,44,052
3	15000	9.3718	1,40,577
4	15000	9.1216	1,36,824
5	15000	8.8513	1,32,769
6	15000	8.5594	1,28,391
7	15000	8.2442	1,23.663
8	15000	7.9037	1,18,555
9	15000	7.5360	1,13,040
10	15000	7.1389	1,07,083
11	15000	6.7100	1,00,650
12	15000	6.2468	93,702
13	15000	5.7466	86,199
14	15000	5.2063	78,094
15	15000	4.6228	69,342
16	15000	3.9927	59,890
17	15000	3.3121	49,681
18	15000	2.5770	38,655
19	15000	1.7832	26,748
20	15000	0.9259	13,888
	Total		19,09,074

(iii) Total Investment Balance (At Age 65) = Mutual Fund Balance + Bank Balance

= 14,72,715 + 19,09,074

= $ 33,81,789