Question

Doug​ Klock, 56​, just retired after 31 years of teaching. He is a husband and father of three​ children, two of whom are still dependent. He received a ​$154 comma 000 ​lump-sum retirement bonus and will receive ​$2 comma 500 per month from his retirement annuity. He has saved  $ 145 comma 000 in a​ 403(b) retirement plan and another ​$97 comma 000 in other accounts. His​ 403(b) plan is invested in mutual​ funds, but most of his other investments are in bank accounts earning 2 or 3 percent annually. Doug has asked your advice in deciding where to invest his​ lump-sum bonus and other accounts now that he has retired. He also wants to know how much he can withdraw per​ month, considering he has two children in college and a nonworking spouse. His current monthly expenses total $ 5 comma 800. He does not intend to begin receiving Social Security until age 67​, and his monthly benefit will amount to ​$1 comma 600. He has grown accustomed to some risk but wants most of his money in​ FDIC-insured accounts.
a. Assuming Doug has another account set aside for​ emergencies, how much can he withdraw on a monthly basis to supplement his retirement annuity if his investments return 4 percent annually and he expects to live 40 more​ years?
b. Ignoring his Social Security​ benefit, is the amount determined in part ​(a​) sufficient to meet his current monthly​ expenses? If​ not, how long will his supplemental retirement income last if his current monthly expenses remain at ​$5 comma 800 per​ month? How long will it last if his expenses are reduced to ​$4 comma 600 per​ month?
c. If he withdraws ​$3 comma 300 per​ month, how much will he have in 11 years when he turns 67​? If he begins to receive Social Security payments of ​$1 comma 600 at 67​, how many years can he continue to withdraw ​$1 comma 700 per month from his​ investments?
d. If the inflation rate averages 2 percent during​ Doug's retirement, how old will he be when prices have doubled from current​ levels? How much will a soda cost when Doug​ dies, if he lives the full 40 years and soda currently costs ​$1 ​today?

Answer 1