#5

5. Funding the nest egg shortfall Determining Retirement Shortfall Ryan and Rebecca have 25 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and Investment needs. Based on their calculations and taking into account their soci Security and pension incomes, they have a projected shortfall of $5,250.00 per year Use the following tables to answer the questions about future value interest factors Interest Factors-Future Value Interest Factors--Future Value of an Annuity Periods 6.00% 8.00% 9.00 20 3.00% 1.810 2,090 3.210 4.661 5.600 25 4.290 3.620 5.00% 2.653 3.386 4,322 5,516 7.040 6.848 10.062 30 2.420 35 5.740 7.690 10.280 2.810 3.260 14.755 13.260 20.410 31.410 40 21.724 The impact of the inflation factor Continuing their worksheet, they consult a friend, economies professor Dr. Garcia, who believes that they can expect the average annual inflation rate to be s possibly 6% tops a Complete the following table by calculating inflation-adjusted annual shortfall for Ryan and Rebecca at Sh. Then recalculate the shortfall based on the top rate provided by Dr. Garcia Interest rate (Percent) Inflation-adjusted annual shortfall (Dollars) 30 2.420 4.322 5.740 10.062 13.260 35 2.810 5.516 7.690 14.785 20.410 40 3.260 7.040 10.280 21.724 31.410 The impact of the inflation factor Continuing their worksheet, they consult a friend, economics professor Dr. Garcia, who believes that they can expect the average annual inflation rate to be 5%, possibly 6% tops. Complete the following table by calculating inflation-adjusted annual shortfall for Ryan and Rebecca at 596. Then recalculate the shortfall based on the top rate provided by Dr. Garcia Interest rate (Percent) Inflation-adjusted annual shortfall (Dollars) Funding the shortfall In addition to determining a realistic inflation rate, Ryan and Rebecca talked to their financial advisor to understand rates of return now and after they reach retirement. First, their advisor projects that in 25 years, they can realistically earn 5% on their nest egg. Second, he recommends an investment vehicle that is earning 6% annually. Complete the following table using the inflation-adjusted annual shortfall at 5 as previously calculated. Interest rate (Percent) Amount of retirement funds required (Dollars) 5 Description Amount of retirement fund required Annual savings required to fund nest egg 6