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5. Funding the nest egg shortfall Determining Retirement Shortfall Yuan and Alex have 40 years to retirement. They are taking a personal finance course and
5. Funding the nest egg shortfall Determining Retirement Shortfall Yuan and Alex have 40 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 Social Security and pension incomes, they have a projected shortfall of $5,000.00 per year. Use the following tables to answer the questions about future value interest factors. Interest Factor Future Value Interest Factor-Future Value of an Annuity 5.00% 6.00% 8.0096 9.00% 3.210 4.661 5.600 25 6.845 Periods 3.00% 20 1.810 2.090 30 2.420 35 2.810 an 60 2.653 3.386 4.122 5.516 4.290 5.740 10.062 14.785 8.620 13.260 20.410 1410 7.690 inn 7.04 31 724 The Impact of the inflation factor Continuing their worksheet, they consuk a friend, economics professor Dr. Wu, who believes that they can expect the average annual inflation rate to be 5%, possibly 64 tops Complete the following table or calculating inflation-adjusted annual shortfall for Yuan and Alex at 5%. Then recalculate the shortfall based on the top rabe provided by Dr. Wu. Interest rate (Percent) Inflation-adjusted annual shortfall (Dollars) The Impact of the inflation factor Continuing their worksheet, they consult a friend, economics professor Dr. Wu, who believes that they can expect the average annual inflation rate to be 5%, possibly 5% tops Complete the following table by calculating inflation-adjusted annual shortfall for an and Alex at 5%. Then recalculate the short based on the top rate provided by Dr. Wu. Interest rate (Percent) Inflation-adjusted annual shortfall (Dollars) Funding the shortfall In addition to determining a realistic Inflation rate, Yuan and Alex talked to their financial advisor to understand rates of retum now and after they reach retirement. First, their advisor projects that in 40 years, they can realistically earn 5on their next epo. Second, he recommends an Investment vehide that is earning 64 annually Complete the following table using the inflation-adjusted annual shortfattat 5% as previously calculated Interest rate (Percent) Amount of retirement funds required (Dollars) Description Amount of retirement fund required Annual savings required to fund nesto
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