Question

2.) Brent and Sharon are getting close to retirement and want to make sure they are on track for a comfortable lifestyle. They currently make $120,000 per year in gross income. They pay FICA taxes of $9.180; have commuting expenses of S2,000 per year, Uniform expenses (inc, dry cleaning) of $1,200 per year, a monthly mortgage payment of S950 per month and will be paid off in 10 more years. They eat lunch out at work often which runs $1,300 per year. They anticipate some expenses will increase during retirement: Medical insurance will increase by 6,000 per year, travel expenses will increase by $5,000 per year, and hobby expenses will increase by $4,000 per year. They currently save $12,000 per year. Brent has a defined benefit pension plan at work that will pay him S2,000 (in today's dollars) each month and adjusts for inflation each year Step 1: What is their current annual wage replacement need for retirement in today's dollars? a.) $97,920 b.) $73,920 c.) $93,370 d.) $84,370 e.) Some other amount. (indicate the amount here Step 2 What is their annual retirement need when they start retirement 15 years from now? In other words how much will they need to withdraw from their retirement account each year to fund their retirement 15 years from now? Assume inflation averages 2.5% per year a.) $141,817 b.) $107,058 c.) $135,228 d.) $122,193 e.) $137,472 Step 3 Assuming inflation averages 2.5% and their investment rate of return is 9% per year, and they expect to live 25 years in retirement. How much will they need in their retirement accounts when they retire in 15 years from now? a.) $2,719,865 b.) $1,081,454 c.) $1,325,258 d.) $1,409,299 e.) $6,554,942

please with steps

Answer 1

Current gross income	120,000
Tax	9,180
Current net income (a)	110,820
Commuting + uniform	3,200
Mortgage	11,400
Lunch	1,300
Additionals-
Medical	6,000
Travel + Hobby	9,000
Current saving	12,000
Pension	24,000
Additional expenses after retirement
Medical	6,000
Travel + Hobby	9,000
Less employment expenses
Commuting + uniform	3,200
Lunch at work	1,300
Net additional expense after retirement (b)	10,500
=6000+9000-3200-1300
(Rest of the current expenses will remain constant)
Current wage requirement in employment
Current net income (a)	110,820
Less current saving	12,000
Net essential income	98,820
Add Net additional expense after retirement (b)	10,500
Current retirement wage required	109,320
=98820+10500
Less DB pension	24,000
Net retirement wage required	85,320
=109320-24000
Inflation rate	2.50%
After 15 years, there will be no mortgage payment
net retirement wages	73,920
85320-11400
FV of Net retirement wage required after 15 years	107,058
=73920*(1+2.5%)^15
Assuming the DB plan pension will increase with inflation
Amount required in retirement=
Net retirement wage required after 15 years	107,058
Discount rate for investment	9.00%

Annuity

Period	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24
Amount required (growth @2.5% inflation)	107,058	109,735	112,478	115,290	118,172	121,127	124,155	127,259	130,440	133,701	137,044	140,470	143,981	147,581	151,270	155,052	158,929	162,902	166,974	171,149	175,427	179,813	184,308	188,916	193,639
PV (@9% discount rate)	107,058	100,674	94,671	89,025	83,716	78,724	74,029	69,615	65,463	61,560	57,889	54,437	51,190	48,138	45,267	42,568	40,029	37,642	35,397	33,287	31,302	29,435	27,680	26,029	24,477
Total retirement savings required	1,409,301

Current saving	300,000
Net saving required at the end of 15 years	1,109,301
=1409301-300000
Annual savings required =	10,781.55
=PMT(9%,15,300000,-1409301,0)
Steve and Roselyn
Income required	40,000
Inflation	3.00%
Discount rate for investment	8.00%
Life expectancy in retirement	30
Annuity

Period	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26	27	28	29
Amount required (growth @3% inflation)	40,000	41,200	42,436	43,709	45,020	46,371	47,762	49,195	50,671	52,191	53,757	55,369	57,030	58,741	60,504	62,319	64,188	66,114	68,097	70,140	72,244	74,412	76,644	78,943	81,312	83,751	86,264	88,852	91,517	94,263
PV (@8% discount rate)	40,000	38,148	36,382	34,698	33,091	31,559	30,098	28,705	27,376	26,108	24,900	23,747	22,648	21,599	20,599	19,645	18,736	17,869	17,041	16,252	15,500	14,782	14,098	13,445	12,823	12,229	11,663	11,123	10,608	10,117
Total retirement savings required	655,590

Jordon
Current earning	100,000
Requirement at retirement -%	75.00%
Requirement at retirement -$	75,000
Social security	20,000
Net retirement income required	55,000
Inflation	4.00%
Discount rate for investment	6.00%
Life expectancy in retirement	30
Annuity

Period	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26	27	28	29
Amount required (growth @4% inflation)	55,000	57,200	59,488	61,868	64,342	66,916	69,593	72,376	75,271	78,282	81,413	84,670	88,057	91,579	95,242	99,052	103,014	107,135	111,420	115,877	120,512	125,332	130,346	135,559	140,982	146,621	152,486	158,585	164,929	171,526
PV (@6% discount rate)	55,000	53,962	52,944	51,945	50,965	50,003	49,060	48,134	47,226	46,335	45,461	44,603	43,762	42,936	42,126	41,331	40,551	39,786	39,035	38,299	37,576	36,867	36,172	35,489	34,819	34,162	33,518	32,886	32,265	31,656
Total retirement savings required	1,268,875