Determine how much they will need the first year

Reference no: EM133430522

Retirement Information

Benjamin and Sarah would both like to retire when they are 65 and 64 years old, respectively, and they expect to be in retirement for 30 years. They would hope to have $75,000 per year of pretax income in today's dollars during retirement. They do not want to rely on Social Security benefits for their retirement planning. Any money received from Social Security will be considered extra income.

Benjamin does not participate in the Section 401(k) plan available through Moore & Moore. In the plan, the firm matches $0.50 for every dollar contributed, up to 6% of his contribution (it he contributes 6% of his salary, the company contributes 3%). Benjamin may defer a maximum of 16% of his salary.

Sarah is enrolled in a defined contribution plan in which the school contributes 7% of her salary and she contributes 3%. The plan provides several investment options: bond funds, stock funds, and money market accounts. She has chosen to invest this contribution in fixed instruments (bond funds). The plan has a 2- to 6-year graduated vesting schedule, and she has been a participant for four years. The total balance of her account is $16,500. Although she has not participated, the school also offers a 403 (b) plan for salary deferrals. There are no employer contributions with the 403(b). Inflation is 4%

Hint:

Step 1: Determine how much they will need the first year of retirement if they need $75,000 today.
PV = 75,000
N = years to retirement
VYR = inflation
FV = ? = FIRST year of retirement amount needed
Step 2: Compute lump sum needed at the beginning of retirement to fund 30 years of retirement
BEGIN MODE we need money atthe beginning of the year.
PMT = First year of retirement amount needed
I/YR = (1+investmentreturn/1+inflation)-1*100 hit enter
N = number of years in retirement
PV = ? = lump sum needed at retirement
Step 3: Compute Monthly savings to reach the lump sum FV
END MODE we save at the end of the month
FV = lump sum needed at retirment
I/yr = investmentreturn/12 Savings rate/12
N = years of saving until retirement *12
PMT = ?

Reference no: EM133430522

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