Question
1. Alonzo plans to retire at age 67. His current expenses are $40,000, and he expects 3 percent inflation from now until retirement. a). Use
1. Alonzo plans to retire at age 67. His current expenses are $40,000, and he expects 3 percent inflation from now until retirement.
a). Use the replacement ratio method to estimate Alonzos pretax retirement income needs in the first year of retirement, assuming that he is now 22 years old and will need to replace 80 percent of his final salary.
b). Use the replacement ratio method to estimate Alonzos pretax retirement income needs in the first year of retirement, assuming that he is now 42 years old and will need to replace 80 percent of his final salary.
c). Use the adjusted expense method to estimate Alonzos retirement income needs in the first year of retirement, assuming he is currently 22 years old. For this part, assume that reduction in expenses for employment costs and mortgage payments will save him $15,000 per year in current dollars and that his additional costs for insurance and vacations will be $10,000. Alonzo's retirement needs in the first year of retirement will equal $_____ in todays dollars or $_____ upon retirement at age 67.
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