Assume that Megan and Kevin 6% (after inflation and taxes on the car goals). In figuring the savings required for Kevin's father's retirement fund, Megan and Kevin assume that they could earn 6.5% (after taxes and inflation ) on the money once his father retires. While they are accumulating the money, they feel they can take more risk and earn 8% after taxes and inflation. Using time value calculations, how much would Megan and Kevin have to save this year to be on track in meeting their goals for the second car, the down payment for a new car to replace the Explorer and the fund for Kevin's father's retirement years?
Pay off all existing credit card balances within the next 2 years. Have liquid assets equal to 3 month's net salary within the next 2 years for an Emergency fund. Save $10,000 for the purchase of a second car in 3 years. Buy a house within 5 years. Megan and Kevin plan on using the inherited funds that are currently invested in the Fidelity Magellan mutual fund for this goal. Save $6,000 for a down payment on a new car to replace the Explorer within 5 years. Increase contributions to Kevin's 401(k) plan from 5% to 8% of his gross salary. Have enough accumulated in an account to provide Kevin's father $12,000 a year during his retirement years. They expect Lyle will retire in 20 years at age 70 and will live 15 years after retirement. Kevin and Megan would like to have all the money accumulated by the time Lyle retires. Establish a regular savings/investment program to accomplish these goals. INCOME-January 1 to December 31, 2001 Salary (Kevin) $ 42,000 Bonuses Salary (Megan) Bonuses $ 0 $ 19,000 $ 0. $ 5,000 $ 75 $ 975 Consulting income (Megan) Interest Dividends Capital gains distributions $ 3,197 Monthly salary after tax deductions: Kevin Megan $ 1,583 $ 3,500 525 111 Gross salary Federal income tax withholding State income tax withholding (3%) Social security tax withholding (7.65%) Net salary 105 268 $ 2,602 47 121 $ 1,304 Pay off all existing credit card balances within the next 2 years. Have liquid assets equal to 3 month's net salary within the next 2 years for an Emergency fund. Save $10,000 for the purchase of a second car in 3 years. Buy a house within 5 years. Megan and Kevin plan on using the inherited funds that are currently invested in the Fidelity Magellan mutual fund for this goal. Save $6,000 for a down payment on a new car to replace the Explorer within 5 years. Increase contributions to Kevin's 401(k) plan from 5% to 8% of his gross salary. Have enough accumulated in an account to provide Kevin's father $12,000 a year during his retirement years. They expect Lyle will retire in 20 years at age 70 and will live 15 years after retirement. Kevin and Megan would like to have all the money accumulated by the time Lyle retires. Establish a regular savings/investment program to accomplish these goals. INCOME-January 1 to December 31, 2001 Salary (Kevin) $ 42,000 Bonuses Salary (Megan) Bonuses $ 0 $ 19,000 $ 0. $ 5,000 $ 75 $ 975 Consulting income (Megan) Interest Dividends Capital gains distributions $ 3,197 Monthly salary after tax deductions: Kevin Megan $ 1,583 $ 3,500 525 111 Gross salary Federal income tax withholding State income tax withholding (3%) Social security tax withholding (7.65%) Net salary 105 268 $ 2,602 47 121 $ 1,304
