Question

Part 1: Tom and Debbie Flynn - Retirement Savings (15 points) Tom and Debbie are starting to take their retirement planning seriously. They are both 46 and plan to retire in 20 years at the age of 66. They expect to live 15 years in retirement (a life expectancy of 81). Between their 401k and IRA accounts they currently have $67,966 in retirement savings They currently have a combined income of $88,000 per year and expect to be able to live comfortably in retirement with 80% of their current purchasing power. They expect inflation to be 2% per year for the rest of their lives. They also expect to earn 11.0% per year (the average return on Blue Chip stocks) on their investments, both now and in retirement analysis of their retirement planning needs and provide them with a professionally written Conduct an letter. In the letter and attached schedules provide information that answers the following questions Please include a description of the relevant assumptions and any explanatory comments that make the results easier to understand. What amount of annual income will they need (after adjusting for inflation) in each of the fifteen years of retirement to have the purchasing power of 80% of their current income? 1. Assuming they will continue to earn 11.0% on their investments, how much money will they need to have in their retirement accounts when they retire so that it will provide the fifteen years be zero.) 2. of income? (note: at the end of the 15 years the account balance should Taking into account what they currently have in savings, how much will they have to save each 3. month to meet their retirement needs?

Answer 1

Ms Eolution staving Censides the TOM aud Ddbie are tate vethement plannig seicy current combral income 2,000 Income reguired fin 1st year of retmente 807. of current Combined intone, djefed for fn tlation Incone requived n 1 year cf rethedonant 88cca 00731 (1+2)20) 804 - #10461 year of e tament fo ea 0S Pomcome fn aadh guccee to main tain Pulhasra byi Pewes

-B1*((1+2% ) ^20) *80% B4 B A C D $88,000 1 Current Income 2 3 Year of Retirement Income required 1 $104,611 4 $106,703 5 2 $108,837 6 $111,014 $113,234 5 $115,499 9 $117,809 10 $120,165 11 $122,568 12 9 $125,019 13 10 $127,520 14 11 $130,070 15 12 $132,672 16 13 $135,325 17 14 $138,032 18 15

he mcome required n each year ofyetiemnt Pcha the discont rate & Lack to the 1st year of retiremart, ung the nvestmar N(which ts rehuan on -the sum af thae discaunted cumouts fo tha mony tequired fn theer Sowings account to tod thar letrement. 01: 0) 9

fB6/1.11 A6 C6 A B C 1 Current Income $88,000 2 3 Year of Retirement Income required present value $104,611 $94,244 4. 1 $106,703 $86,602 5 2 $108,837 $79,581 6 3 $111,014 $73,128 7 4 $113,234 $67,199 8 5 $115,499 $61,750 9 6 $117,809 $56,744 10 7 $120,165 $52,143 11 $122,568 $47,915 12 9 $125,019 $44,030 13 10 $127,520 $40,460 14 11 $130,070 $132,672 $37,179 15 12 $34,165 16 13 $135,325 $31,395 17 14 $138,032 $28,849 18 15 $835,383 Total 19

The morthly Sautngs required fs alaulated sg the PMT function EXcel oth thee frput& Yate 9 % frvest ments io decxea sed by retusn on 2% to adjust or faten The annual rate devided 1 to canuert fito mevithlyrate nYer = 20* 1a(30 yeas left to retiremart with R montlydee -sits fnto sauing cucaunt PV=-67,Clent lauings fv=825, 383 (epiret savings at the and of a0 yea Hxcm noto PMT 9calcuated to Le , 022 The mordthly Souing vequred s,0R2

=PMT( 9 % / 12,20*12,67966,942255) B2 A B D $88,000 1 Current Income 2 monthly savings ($2,022)