Reference no: EM131976668

Doug Klock, 56, just retired after 31 years of teaching. He is a husband and father of three, two of whom are still dependent. He received a $156,000 lump-sum retirement bonus and will receive another $106,000 in other accounts. His 403b 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 settlement 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. Because Kevin and Adam are still in college, his current monthly expenses total $6,000. He does not intend to begin receiving Social Security until age 67, and his monthly benefits will amount to $1550. He has grown accustomed to some risk but wants most of his money in FDIC insured accounts. (ignore income taxes in your calculations.)

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 5 percent annually and he expects to live 30 more years?

B) Ignoring 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 $6000 per month? If his expenses are reduced to $4,600 per month?

C) If his withdraws $3,300 per month how much will he have in 11 years when he turns 67? If he begins to receive Social Security payments of $1550 at 67, how many years can he continue to withdraw $1750 per month from his investments?

D) If the inflation rate averages 2 percent during Dougs 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 30 years and soda currently costs $1 today?