Amy is 40-year old and has never married. She wants to retire at age 62 with an 80% wage replacement ratio. She currently earns $100,000 and has managed to save $100,000 towards her retirement goal. She is currently saving $5,000 per year in her 401(k) plan. Her employer's plan calls for a 50% match for contribution up to an employee elective deferral of 6%.

Financial goal

Amy's primary goal is to retire at age 62 with an 80% wage replacement, including Social Security, projected to be $30,000 in today's dollars at the normal retirement age of 67. She wants to plan for a life expectancy to age 95.

Economic and investment information

• General inflation is expected to average 3% annually for the foreseeable future.
• Amy's expected investment portfolio return is 8.5%.
• Amy's marginal income tax rate is 25%.

QUESTIONS:

2. Do you all think the 80% wage replacement ratio is reasonable, and why? (2 points)

3. Using your expertise and tell Amy if she will have a retirement deficit or surplus, with her current retirement/financial situation (3 points).

4. If her current situation may result in a retirement deficit, what would your team recommend her? Or if there could be a retirement surplus instead, what would your team recommend her to do? (3 points).