Julie
age 42, plans to retire at age 62, and estimates to live until age 90. Her current income is $70,000 and she has
determined her wage replacement ratio will be 80%. Her Social Security benefit
in today’s dollars adjusted for early retirement is $15,000 per year. She expects to earn 9.5% on her investments
both before and during retirement. Inflation
is expected to average 3%. (6 points)
What
is the capital necessary at the beginning of retirement, in current dollars
given inflation adjusted return, to fund the retirement period?
How
much must she save at the end of each year to reach this goal, if she has
already saved $60,000?
What
is the capital necessary at the beginning of retirement, in current dollars
given inflation adjusted return, if using the capital preservation model?
How
much must she save at the end of each year using capital preservation if she
has already saved $60,000?
What
is the capital necessary at the beginning of retirement, in current dollars
given inflation adjusted return if using the purchasing power preservation
model?
How
much must she save at the end of each year using purchasing power preservation
if she has already saved $60,000?
For the second problem, you will need to provide your own
objective, using the current inflation rate and current reasonable return given
the account being used (please provide documentation for these numbers). You should be able to pull most of this
information from the needs analysis worksheet, which is also part of this
assignment. Please refer to your Social
Security Benefits Statement for your expected benefit in today’s dollars. Though, ideally, I would like each of you to
complete a retirement needs analysis based on your personal financial goals,
this isn’t always practical. If it
isn’t, please do use a fictitious objective.(4 points)
____________________
age ____, plans to retire at age ____, and estimates to live until age ____. Current income is ____________ and the wage
replacement ratio will be ____%. The Social Security benefit in today’s dollars
adjusted for retirement is $__________ per year. The average expected return on investments is
____% both before and during retirement. Inflation is expected to average ___%.
What
is the capital necessary at the beginning of retirement to fund the retirement
period?
How
much must you save at the end of each year to reach this goal, if you have
already saved $__________?
