Continuing Case 65. Retirement Income Forecast 1 Jamie Lee and Ross, now 57 and still very active, have plenty of time on their hands now that the triplets are away at college. They both realized that time has just flown by; over twenty-four years have passed since they married! Looking back over the past years, they realized that they have worked hard in their careers, Jamie Lee as the proprietor of a cupcake caf and Ross, self-employed as a web-page designer. They have enjoyed raising their family and strived to be financially sound as they are looking to retirement that is just around the corner. They saved regularly and invested wisely over the years. They rebounded nicely from the economic crisis over the past few years, as they watched their investments closely and adjusted their strategies when they felt it necessary. They purchase vehicles with cash and do not carry credit card balances, choosing instead to use them for convenience only. The triplets are pursuing their master's degrees and have tuition covered through work/study programs at the university. eBook E Jamie Lee and Ross are just a few short years from realizing their goals of retiring at 65 and purchasing a home at the beach! Print They are reviewing their financial situation to ensure they will be ready for retirement. They anticipate being able to live comfortably with 80% of their current expenses. The rate of return on their investments until they retire is 4%. They expect this percentage to drop References to 3% after retirement. Use this information, along with Exhibit 1-A, Exhibit 1-B, and the information provided below to determine the annual deposit amount Jamie Lee and Ross will need to make until they retire in order to make up the shortfall between their estimated expenses and income needed during retirement. Each answer must have a value for the assignment to be complete. Enter "O" for any unused categories. Current Expense Amounts (Jamie Lee and Ross Combined) Fixed expenses: $3,000/month Variable expenses: $2,000/month Estimated Income Amounts (Jamie Lee and Ross Combined) Social Security: $2,100/month Current IRA balance: $92,000 Estimated IRA withdrawal: $300/month Other investments: $26,400/year Estimated Annual Retirement Living Expenses Estimated annual living expenses if retiring today Number of years until retirement Expected annual rate of return before retirement Future value (use Exhibit 1-A) Projected annual retirement living expenses, adjusted for inflation Estimated Annual Income at Retirement. Social Security income Company pension, personal retirement account income Investment and other income Total retirement income Needed investment fund after retirement (A - B) Number of years until retirement Expected annual rate of return before retirement Future value for a series of deposits (use Exhibit 1-B) Annual deposit to achieve needed investment fund (C/D) 20 points X (A) (B) (C) (D) EXHIBIT 1-A Future value (compounded sum) of $1 after a given number of time periods Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 1 1.010 1.020 1.030 1.040 1,050 1,060 1.070 1.080 1.090 2 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 1.282 1.641 2.094 2.666 3.386 4.292 5.427 6.848 1.348 1.811 2.427 3.243 4.322 5.743 7.612 10.063 1.489 2.208 3.262 4.801 7.040 10.286 14.974 21.725 1.645 2.692 4.384 7.107 11.467 18.420 29.457 46.902 12% 13% 14% 15% 16% 17% 18% 19% 10% 3.970 4.328 4.717 5.142 5.604 8.623 13.268 31.409 74.358 20% 1.100 1.210 1.331 1.464 1.611 1.772 1.949 2.144 2.358 2.594 2.853 3.138 3.452 3.797 4.177 4.595 5.054 5.560 6.116 6.727 10.835 17.449 45.259 117.390 25% 11% 1.110 1.232 1.368 1.518 1.685 1.870 2.076 2.305 2.558 2.839 3.152 3.498 3.883 4.310 4.785 5.311 5.895 6.544 7.263 8.062 13.585 22.892 65.001 184.570 30% 8 9 10 11 12 13 14 15 16 17 18 19 20 25 30 40 50 Period 1 1.120 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200 1.250 1.300 2 1.254 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440 1.563 1.690 3 1.405 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728 1.953 2.197 4 1.574 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074 2.441 2.856 5 1.762 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488 3.052 3.713 6 1.974 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986 3.815 4.827 7 2.211 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583 4.768 6.276 8 2.476 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300 5.960 8.157 9 2.773 3.004 3.252 3.518 3.803 4.108 4.435 4.785 5.160 7.451 10.604 10 3.106 3.395 3.707 4.046 4.411 4.807 5.234 5.696 6.192 9.313 13.786 11 3.479 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430 11.642 17.922 12 3.896 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916 14.552 23.298 13 4.363 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699 18.190 30.288 14 4.887 5.535 6.261 7.076 7.988 9.007 10.147 11.420 12.839 22.737 39.374 15 5.474 6.254 7.138 8.137 9.266 10.539 11.974 13.590 15.407 28.422 51.186 16 6.130 7.067 8.137 9.358 10.748 12.330 14.129 16.172 18.488 35.527 66.542 17 6.866 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186 44.409 86.504 18 7.690 9.024 10.575 12.375 14.463 16.879 19.673 22.091 26.623 55.511 112.460 19 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948 69.389 146.190 20 9.646 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338 86.736 190.050 25 17.000 21.231 26.462 32.919 40.874 50.658 62.669 77.388 95.396 264.700 705.640 30 2,620.000 29.960 39.116 50.950 143.370 184.680 237.380 93.051 132.780 188.880 750,380 1,051.700 1,469.800 289.000 450.740 700.230 1,083.700 1,670.700 2,566.200 3,927.400 5,998.900 9.100.400 70,065.000 497,929.000 66.212 85.850 111.070 267.860 378.720 533.870 807.790 7,523.200 36,119.000 40 50 EXHIBIT 1-B Future value (compounded sum) of $1 paid in at the end of each period for a given number of time periods (an annuity) Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.010 2.020 2.070 2.080 2.090 2.100 2.110 3.030 3.060 3.215 3.246 3.278 3.310 3.342 4.060 4.122 4.440 4.506 4.573 4.641 4.710 E Bate 5.101 5.204 5.751 5.867 5.985 6.105 6.228 Larve 6.152 0.152 6.308 wwwww 7.153 7.336 7:199 7.716 7.523 7.913 7:710 2713 7.214 7:414 7.434 8.654 www.am 8.923 0.729 9.200 9.783 4.200 9.487 Prog 8.286 0.200 8.583 0.363 10.260 10.637 10.057 11.450 11.028 11.859 9.369 9.755 11.978 12.488 13.021 13.579 14.164 10.462 10.950 13.816 14.487 15.193 15.937 16.722 15784 12.169 16645 18571 11.567 15.784 16.645 17.560 18.531 19.561 12.683 13.412 20141 18977 21 384 17.888 18.977 20.141 21.384 22713 22.713 11.000 13,809 14400 14.680 20.141 21.495 22.953 24.523 26.212 14047 15074 14,947 22 550 STORE 15.974 24315 22.550 24.215 26.019 27.975 30.095 www 16.097 17.293 25.129 27.152 29.361 31.772 34.405 17.050 10120 70704 17.007 TEDA ***** 17.258 18.639 27.888 30.324 35.950 39.190 33.003 www. T 18.430 20.012 30.840 33.750 36.974 www 40.545 44.501 10415 19.615 1 COO 21.412 33.999 37.450 41.301 45.599 50.396 - 20.811 22.841 37.379 41.446 46.018 51.159 56.939 22.019 24.297 40.995 45.762 51.160 57.275 64.203 28.243 32.030 63.249 73.106 84.701 98.347 114.410 34.785 40.588 94.461 113.280 136.310 199.020 164.490 442.590 581,830 48.886 60.402 199.640 406.530 259.060 337,890 573.770 64.463 84.579 815.080 1,163.900 1,668.800 12% 13% 18% 19% 20% 25% 30% 3 4 5 6 19 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 30 40 40 50 Period 1 2 3 4 4 5 6 6 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2.120 2.130 2.150 2.160 2.170 2.180 2.190 2.200 2.250 2.300 3.374 3.374 3.407 3.473 3.506 3.539 3.572 3.606 3.640 3.813 3.990 4.779 4.850 4.993 5.066 5.141 5.215 9.219 5.291 5.368 5.766 6.187 a 5.700 0.107 6.353 6.480 6.742 6.877 0.017 7.014 7.154 7.297 1.291 7.442 8.207 9.043 6.115 8.115 8.323 0.323 8.754 0.734 8.977 9.207 7.201 9.442 7.442 9.683 9.085 9.930 7:730 11.259 12.756 10089 10.405 11.067 11414 11.414 11.772 12142 12.142 12.523 12.916 15.073 17.583 12.300 12.757 13727 14.240 14.773 15 327 15.902 15.902 16.499 19.842 23.858 9 14776 14.776 15.416 16.786 9 17.519 19923 18.285 32015 19.086 25, 802 19.923 20.799 25.802 32.015 17510 10 17.549 20 704 21 791 18.420 TOFT 20.304 10120 22 201 21.321 24701 22.393 25.950 23.521 24.701 25.959 33.253 42.619 20455 11 20.655 21814 24340 24.349 25.733 20 755 27.200 72150 21.814 42546 56 405 28.755 30.404 32.150 42.566 56.405 OUT ..... 12 24.133 *Ow FLOO 25.650 27.271 30.850 29.002 32.824 34.931 37.180 39.581 54,208 74.327 .. 74752 13 www 28.029 10 107 29.985 32.089 34.352 36.786 42.210 39.404 42.219 45.244 48.497 68.760 97.625 14 32.393 34.883 37,581 40.505 43.672 47.103 50.818 54.841 59.196 86.949 127.910 www www B 15 37.280 40.417 43.842 47.580 51.660 56.110 60.965 66.261 72.035 109.690 www 167.290 46-677 .... 16 42.753 46.672 50.980 TOATA 55.717 12.010 60.925 66.649 72.939 87.442 138.110 218.470 17 48.884 53.739 59.118 65.075 71.673 285.010 Pe 105.930 173.640 ....... ..... 128.120 218.050 TEAT www.... 18 55.750 61.725 68.394 75.836 371.520 19 79.850 96.022 115.270 - 138.170 154.740 273.560 165.420 186.690 342.950 402.040 471.980 1,054.800 78.979 87.068 B 84,141 93.406 103.740 - 98.603 110.290 123.410 115.380 130.030 146.630 249.210 20 - - 63.440 70.749 483.970 72.052 80.947 630.170 133.330 155.620 2,348.800 241.330 293.200 530.310 647.440 790.950 966.700 1,181.900 3.227.200 8,730.000 767.090 1,013.700 1,342.000 1,779.100 2,360.800 3,134.500 4,163.210 5,529.800 7,343.900 30,089.000 120,393.000 50 2,400.000 3,459.500 4,994.500 7,217.700 10,436.000 15,090.000 21,813.000 31,515.000 45,497.000 80.256.000 165,976.000 78.969 88.212 91.025 102.440 181.870 212.790 356.790 434.750 25 25 292.110 342.600 30 40 7 7 4 1.000 2.030 3.091 4.184 5.309 6.468 7.662 7.002 8.892 10.159 11.464 12 808 12.808 14192 14.192 15.410 15.618 17.086 17.086 Tr 18.599 20.157 www 21.762 23.414 25.117 26.870 36.459 47.575 75.401 112.800 14% 8 1.000 2.140 3.440 4.921 me 6.610 0.0 10 8.536 0.000 10730 10.730 13.233 16.085 10777 19.337 23.045 1.000 1.000 2.040 2.050 3.122 3.153 4.246 4.310 5.416 5.526 E 6.633 0.009 6.802 0.002 7.898 8.142 9.The 9.214 9.549 10.583 11.027 12006 12.578 13.496 13.486 14.207 15.024 15.017 15.026 15.917 ww 16.627 17.713 18.202 18.292 10.500 19,599 20.024 21.579 OLDOE SVET 21.825 23.657 23.698 25.840 25.645 28.132 27.671 Bran 30.539 B 29.778 33,066 41.646 47.727 56.085 66.439 95.026 120.800 152.670 209.350 15% 16% 1.000 2.060 3.184 4.375 5.637 6.975 0:773 0:374 8.394 9.897 9.097 11.491 13.181 14.972 16.870 18.882 21.015 23.276 25 473 25.673 www 28.213 30.906 33.760 36.786 54.865 79.058 154.760 290.340 17%