This week you are presented with two sets of case facts to determine various retirement funding options for these clients. A successful submission will include not only the final answer, but also all of the work along the way. Demonstrate your mastery of the topic step-by-step and you will do well. Submit just the final amount, right or wrong, and you will not. You see I will provide credit for taking the right steps, even if the final answer may be incorrect.
Please submit your answers as a Word document. I will accept Excel spreadsheets if you choose to use that method, be sure to clearly note your steps and assumptions.
Case #1
Bobby, age 52, has come to you for help in planning his retirement. He works for a bank, where he earns $60,000. Bobby would like to retire at age 62. He has consistently earned 8% on his investments and inflation has averaged 3%.
1) Assuming he is expected to live until age 95 and he has a wage replacement ratio of 80%, how much will Bobby need to have accumulated as of the day he retires to adequately provide for his retirement lifestyle?
2) Assuming the same facts as Question 16, approximately how much must Bobby save at the end of each year, from now until retirement, to provide him with the necessary capital balance assuming he has a zero balance today?
3) How much more will Bobby need at retirement to have the same amount at his death as he will have (calculated in #2) at his retirement?
4) How much more will Bobby need at retirement to have the same amount at his death with an equal purchasing power as he will have (calculated in #3) at his retirement?
Case #2
Robin is planning for her retirement. She is currently 37 years old and plans to retire at age 62 and live until age 97. Robin currently earns $100,000 per year and anticipates needing 80% of her income during retirement. She anticipates Social Security will provide her with $15,000 per year at age 62, leaving her with required savings to provide $65,000 ($100,000 x 0.80 – $15,000) annually during retirement. She believes she can earn 11% on her investments and inflation will be 2% per year.
1) How much must Robin save at the end of each year if she wants to make her last savings payment at age 62 to meet her retirement goal?
2) How much must Robin save at the end of each year if she wants to make her last savings payment at age 62, and maintain the original account balance needed at retirement for the entire retirement life expectancy?
3) How much must Robin save at the end of each year if she wants to make her last savings payment at age 62 to meet her retirement goal, assuming she wants to maintain the original purchasing power of her capital balance?
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