Doug Klock, 56, just retired after 31 years of teaching. He is a husband and father of three children, two of whom are still dependent. He received a $143,000 lump-sum retirement bonus and will receive $2,500 per month from his retirement annuity. He has saved $149,000 in a 403(b) retirement plan and another $91,000 in other accounts. His 403(b) plan is invested in mutual funds, but most of his other investments are in bank accounts earning 2 or 3 percent annually. Doug has asked your advice in deciding where to invest his lump-sum bonus and other accounts now that he has retired. He also wants to know how much he can withdraw per month, considering he has two children in college and a nonworking spouse. His current monthly expenses total $5,800. He does not intend to begin receiving Social Security until age 67, and his monthly benefit will amount to $1,600. He has grown accustomed to some risk but wants most of his money in FDIC-insured accounts. a. Assuming Doug has another account set aside for emergencies, how much can he withdraw on a monthly basis to supplement his retirement annuity if his investments return 4 percent annually and he expects to live 25 more years? b. Ignoring his Social Security benefit, is the amount determined in part (a) sufficient to meet his current monthly expenses? If not, how long will his supplemental retirement income last if his current monthly expenses remain at $5,800 per month? How long will it last if his expenses are reduced to $4,600 per month? c. If he withdraws $3,300 per month, how much will he have in 11 years when he turns 67? If he begins to receive Social Security payments of $1,600 at 67, how many years can he continue to withdraw $1,700 per month from his investments? d. If the inflation rate averages 4 percent during Doug's retirement, how old will he be when prices have doubled from current levels? How much will a soda cost when Doug dies, if he lives the full 25 years and soda currently costs $1 today? Doug Klock, 56, just retired after 31 years of teaching. He is a husband and father of three children, two of whom are still dependent. He received a $143,000 lump-sum retirement bonus and will receive $2,500 per month from his retirement annuity. He has saved $149,000 in a 403(b) retirement plan and another $91,000 in other accounts. His 403(b) plan is invested in mutual funds, but most of his other investments are in bank accounts earning 2 or 3 percent annually. Doug has asked your advice in deciding where to invest his lump-sum bonus and other accounts now that he has retired. He also wants to know how much he can withdraw per month, considering he has two children in college and a nonworking spouse. His current monthly expenses total $5,800. He does not intend to begin receiving Social Security until age 67, and his monthly benefit will amount to $1,600. He has grown accustomed to some risk but wants most of his money in FDIC-insured accounts. a. Assuming Doug has another account set aside for emergencies, how much can he withdraw on a monthly basis to supplement his retirement annuity if his investments return 4 percent annually and he expects to live 25 more years? b. Ignoring his Social Security benefit, is the amount determined in part (a) sufficient to meet his current monthly expenses? If not, how long will his supplemental retirement income last if his current monthly expenses remain at $5,800 per month? How long will it last if his expenses are reduced to $4,600 per month? c. If he withdraws $3,300 per month, how much will he have in 11 years when he turns 67? If he begins to receive Social Security payments of $1,600 at 67, how many years can he continue to withdraw $1,700 per month from his investments? d. If the inflation rate averages 4 percent during Doug's retirement, how old will he be when prices have doubled from current levels? How much will a soda cost when Doug dies, if he lives the full 25 years and soda currently costs $1 today
