David and Mary Brown are both 30 years old and have two children, who are six and eight years old respectively. Since marrying ten years ago, the Brown family has relied on Davids salary, which is currently $66,000 per year. David and Mary feel they need to take control of their finances. Now that both children are in school, they have decided that Mary will look into getting a part-time job. She was just hired for a part-time position at a local department store at a salary of $26,000 per year.

Davids salary increases by 1.5% every year and Marys salary increases by 1% every year.

Social Security tax rate is 6.2% for both the employer and employee. The general inflation rate has averaged 2% annually for the last 20 years and it is expected to be 1.5% in the future. Brown familys marginal tax rate is 25%.

The Brown family also know that they need to save for their retirement over time. Their goal is to retire at age 66 with a 75% of preretirement income including social security. They want to plan for a life expectancy to age 95. Davids employer offers a 401(k) plan, but David has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to invest about $7,000 of his salary per year and match his contribution up to $3,000, for a total contribution of $10,000 per year. The retirement funds will be invested in one or more mutual funds. Davids best guess is that the retirement fund investments will earn a return of 8.5% a year. Mary also has a 401(k) plan in which she defers $5000 per year. Her employer calls for a 50% match for contributions up to an employee elective deferral of 6%. She also expects to earn 8.5% on her retirement funds. If their 401(k) plan is not to meet their retirement goal, they want to open individual retirement accounts, or IRAs with additional savings. If the Brown family wants to make their last savings payment at age 66, how much must the Brown family contribute to their IRAs account at the end of each year to meet their retirement goal assuming that their IRAs accounts rate of return is 8.5%? Please, use 8.5% as discount rate for your calculation.

Please use the following table and information as your guidelines to estimate Brown family's Social Security retirement benefit:

Step 1: Enter Brown familys earnings in Column B, but not more than the amount shown in Column A. If brown family has no earnings, enter 0.

Step 2: Multiply the amounts in Column B by the index factors in Column C, and enter the results in Column D. This gives you the Brown familys indexed earnings, or the estimated value of Brown familys earnings in future dollars.

Step 3: Choose from Column D the 35 years with the highest amounts. Add these amounts.

Step 4: Divide the result from Step 3 by 420 (the number of months in 35 years). Round down to the next lowest dollar. This will give you Brown familys average indexed monthly earnings.

Step 5: a. Multiply the first $856 in Step 4 by 90%. b. Multiply the amount in Step 4 over $856 and less than or equal to $5,157 by 32%. c. Multiply the amount in Step 4 over $5,157 by 15%.

Step 6: Add a, b, and c from Step 5. Round down to the next lowest dollar. This is Brown familys estimated monthly retirement benefit at age 66. Step 7: Multiply the amount in Step 6 by 75%.

Year A. B. C. D. Year A. B. C. D. Maximum Actual Index Indexed Maximum Actual Index Indexed earnings earnings factor earnings earnings earnings factor earnings 2017 $118,500 2.06 2035 $154,920 1.57 2018 $120,278 2.03 2036 $157,244 1.55 2019 $122,082 2.00 2037 $161,175 1.51 2020 $123,913 1.97 2038 $165,204 1.48 2021 $125,772 1.94 2039 $169,334 1.44 2022 $127,658 1.91 2040 $173,568 1.41 2023 $129,573 1.88 2041 $177,907 1.37 2024 $131,517 1.85 2042 $182,354 1.34 2025 $133,489 1.83 2043 $186,913 1.30 2026 $135,492 1.80 2044 $192,521 1.27 2027 $137,524 1.77 2045 $198,296 1.23 2028 $139,587 1.75 2046 $204,245 1.19 2029 $141,681 1.72 2047 $210,373 1.16 2030 $143,806 1.70 2048 $216,684 1.13 2031 $145,963 1.67 2049 $223,184 1.09 2032 $148,152 1.65 2050 $229,880 1.06 2033 $150,375 1.62 2051 $236,776 1.03 2034 $152,630 1.60 2052 $243,879 1.00