Financial Planning Exercise 2

Use Worksheet 14.1 to help Bill and Shirley Hogan, who'd like to retire while they're still relatively young - in about 20 years. Both have promising careers, and both make good money. As a result, they're willing to put aside whatever is necessary to achieve a comfortable lifestyle in retirement. Their current level of household expenditures (excluding savings) is around $85,000 a year, and they expect to spend even more in retirement; they think they'll need about 125% of that amount. (Note: 125% equals a multiplier factor of 1.25). They estimate that their Social Security benefits will amount to $30,000 a year in today's dollars and they'll receive another $30,000 annually from their company pension plans. They feel that future inflation will amount to about 3% a year, and they think they'll be able to earn about 12% on their investments before retirement and about 8% afterward. See Appendix A and Appendix B.

Use Worksheet 14.1 to find out how big their investment nest egg will have to be. Round your answer to the nearest dollar. $

How much they'll have to save annually to accumulate the needed amount within the next 20 years. Round your answer to the nearest dollar. $

APPENDIX B Table of Future Value Annuity Factors Instructions: To use this table, find the future value of annuity factor that corresponds to both a given time period (year) and an interest rate. For example, if you want the future value of annuity factor for 6 years and 10%, move across from year 6 and down from 10% to the point at which the row and column intersect 7.716. Other illustrations: for 3 years and 15%, the proper future value of annuity factor is 3.473; for 30 years and 6%, it is 79.058 INTEREST RATE Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 110% 111% 12% 3% 14% 15% 16% 17% 18% 19% 2016 25% 30% 1.000 2.300 3.990 6.187 9.043 2.756 7.214 7434 7.662 7898 8.142 8.334 8.654 8 923 9.200 9487 9.783 10.089 10.405 10730 11.067 11.414 11.772 12.142 12.523 12.916 15.073 17.583 8.288 8 583 8892 9214 9549 9.897 10.280 10.837 11,028 11436 11859 12.300 2.7 13233 13.727 14.240 14.773 15.327 15.902 18.499 9.82 23.858 9.39.755 10.159 10583 11.027 11.491 11.978 12.488 13.021 13 579 14.164 14.776 15.41616085 6.786 17.519 18.285 19.086 19.923 20.799 25.802 32.015 42.619 11 11.567 12.169 12.80 13.486 14207 14.972 15.784 16.645 17.560 18.531 19.561 20.655 21.814 23045 24.349 25.733 27.200 2B.755 30.404 32.150 42.566 56.405 74.327 13 13.809146801561816 627 17.713 18.882 20.14121.495 22.953 24 52326 212 28.02929985 32089 34.352 36.786 39.404 42.219.244 48.497 68.760 97.625 14 14.947 15974 17086 18 292 19.599 21.015 22.550 24 215 26.019 27975 30095 32.333 34883 37.581 40.505 43.672 47.103 50.818 54.841 59196 86.99 127.913 15 16.097 17 293 18.599 20.024 21579 23.276 25.129 27.152 29.381 31.772 34405 37.290 40.417 43842 47.580 51.680 56.110 60.965 8.261 72.035 109.887 167.286 16 17.258 18.639 20.157 21.825 23657 25.673 27.883 30 324 33.003 35.950 39.190 42.753 46.672 50980 55.717 60.925 66.649 72.939 9.850 87.442 138.109 218.472 000 1.000 1000 1000 1000 1.000 1.000 1.000 1,000 1.0001.000 1.000 .000 1.000 1.000 .000 1.000 .000 1.000 1.000 2.010 2.020 2.030 2040 2050 2.060 2.070 2.080 2.090 2.100 2.110 2.120 2.130 2140 2.150 2.160 2.170 2.180 2.190 2.200 3.508 3.539 3.57 3.606 3640 4.060 4.122 4.184 4246 4310 4.375 4.440 4.506 4.573 4.641 4.710 4.779 4.850 4921 4.993 5.066 5.141 5.215 5.291 5368 5.101 5 204 5 309 5 416 5526 5,637 5751 5867 985 6105 228 6.353 480 6610 6,742 6877 7.014 7.154 7.297 7442 1,000 2.250 3.813 5.766 8.207 7.913 8.115 8323 8536 8.74 8.977 9.207 9.442 9.683 9930 11.259 3.030 3060 3.091 3.122 3.153 3.184 3.215 3246 3.278 3310 3342 3.374 3.407 3440 10 10 410950114641200612578 13181 1381614 487 15193 1593716 722 17.549 18.42019337 20.304 21.321 22.393 23.521 2470925.959 33253 12 12.683 13 412 14.192 15 026 15917 16.870 17888 18 977 20.141 21 384 22.713 24.133 25.650 27 271 29.002 30850 32.824 34.931 37,180 39581 54 54.208 17 18,430 20 012 21.782 23 898 25840 28.213 30 840 33.750 38.974 40 545 44 501 48.884 53.739 59118 5.075 71.673 78979 87,088 96 022 105931 173.638 285.01 18 19.615 21.412 23.41425 645 28.132 30.906 33.999 37.450 41.301 45.599 50.39656.750 61.725 68394 .836 84.141 g3.406 103.74 115.27 128. 117 218.045 371.52 19 20.811 22841 25.117 27671 30539 33.760 37.379 41.446 46.018 51.159 56939 63.440 70749 78969 8.212 98603 110.28 123.41 13817 154.740 273.556 83.97 20 22.019 24 297 26.870 29.778 33.068 36.786 40.995 45.762 51.160 57 275 84.203 72.052 0947 91.025 102.444 115.390 130.033 148.628 165.418 188688 342.946 630.165 21 23.239 25.783 28.676 31.969 35.719 39.933 44.865 50 423 56.765 64.002 72.265 81.699 92.470 104768 118.810 134.841 153.139 174.021 197.847 225.026 429.61 820.215 22 24.472 27 299 30.537 34 248 38.505 43.392 49.008 55457 62.873 71.403 81 214 92.503 105491 120438 137,632 157,415 180.172 208.345 238.438 271.031 538.101 1,087.280 23 25.716 28.845 32.453 36.618 41430 46.936 53.436 60 833 69.532 79.543 91.148 104.603 120.205 138 297 153.276 183.601 211.801 244.487 282.362 326.237 673.626 1,388.464 24 26973 30422 34426 39083 4450250816581 776676576 79088497 02174118.155 136831 158659 184.168 213.978 248 808 289 494 337010 392484 843.033 1.806003 25 28.243 32.030 36.459 41.646 47.727 54.865 63.249 73.106 84.701 98.347 114.413 133.334 155.620 181.871 212.793 249.214 292.105 342.603 402.042 471.9811,054.791 2,348.803 26 29.526 33.671 38.553 44 312 51113 59.156 68.676 79 954 93 324 109.182 127999 150.334 176850 208333 245.712 290088 342.763 405.272 479431 567.377 1,319.489 3,054.444 27 30.821 35 344 40.710 47.084 54869 63.706 74.484 87 351102.723121.100 143.079 189.374 200.841 238.499 283.569 337.502 402.032 479.221 571.522 681.853 1,650.381 3,971.778 28 32.129 37.051 42.931 49 968 58.403 68.528 80.698 95 3391 12.968 134 210 159 817 190.699 227.950 272889 327.104 392.503 471.378 566.481 681.112 819.223 2,063.952 5,164.311 29 33.450 38 792 45 219 52968 62323 73.640 87.347103 966124.135148 831 178.397 214.583 258.583 312094 377.170 458.303 552.512 669.447 811.523 984.068 2,580.939 6,714.604 30 34.74056847.575 5605 66 439 79 058 94.461 113283136.308 164.494199021 241.333 293 199 356 787 434.745 530.312 647.439 790.948 g66.712 1,181.882 3,227.174 8729.985 35 41.660 49 994 60 462 73 652 90320111,435138 237172 317215.711271 024 341 590 431.663 548681 693573 881.1701,120.7131.426.491 1,816.6522,314214 2,948341 9,856.761 32,422.868 40 48.886 60.402 75.401 95.026 120800154.762199.635259 057337 882 442.593 681 826 767.091 1,013.7041,342 025 1,779.090 2,360.7673,134.522 4,163.2135,529.829 7,343858 30,088.655 120392.883 Nole. Al factors are founded to the nearest 1/000 in order to agree with values used in the text. APPENDIX B Table of Future Value Annuity Factors Instructions: To use this table, find the future value of annuity factor that corresponds to both a given time period (year) and an interest rate. For example, if you want the future value of annuity factor for 6 years and 10%, move across from year 6 and down from 10% to the point at which the row and column intersect 7.716. Other illustrations: for 3 years and 15%, the proper future value of annuity factor is 3.473; for 30 years and 6%, it is 79.058 INTEREST RATE Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 110% 111% 12% 3% 14% 15% 16% 17% 18% 19% 2016 25% 30% 1.000 2.300 3.990 6.187 9.043 2.756 7.214 7434 7.662 7898 8.142 8.334 8.654 8 923 9.200 9487 9.783 10.089 10.405 10730 11.067 11.414 11.772 12.142 12.523 12.916 15.073 17.583 8.288 8 583 8892 9214 9549 9.897 10.280 10.837 11,028 11436 11859 12.300 2.7 13233 13.727 14.240 14.773 15.327 15.902 18.499 9.82 23.858 9.39.755 10.159 10583 11.027 11.491 11.978 12.488 13.021 13 579 14.164 14.776 15.41616085 6.786 17.519 18.285 19.086 19.923 20.799 25.802 32.015 42.619 11 11.567 12.169 12.80 13.486 14207 14.972 15.784 16.645 17.560 18.531 19.561 20.655 21.814 23045 24.349 25.733 27.200 2B.755 30.404 32.150 42.566 56.405 74.327 13 13.809146801561816 627 17.713 18.882 20.14121.495 22.953 24 52326 212 28.02929985 32089 34.352 36.786 39.404 42.219.244 48.497 68.760 97.625 14 14.947 15974 17086 18 292 19.599 21.015 22.550 24 215 26.019 27975 30095 32.333 34883 37.581 40.505 43.672 47.103 50.818 54.841 59196 86.99 127.913 15 16.097 17 293 18.599 20.024 21579 23.276 25.129 27.152 29.381 31.772 34405 37.290 40.417 43842 47.580 51.680 56.110 60.965 8.261 72.035 109.887 167.286 16 17.258 18.639 20.157 21.825 23657 25.673 27.883 30 324 33.003 35.950 39.190 42.753 46.672 50980 55.717 60.925 66.649 72.939 9.850 87.442 138.109 218.472 000 1.000 1000 1000 1000 1.000 1.000 1.000 1,000 1.0001.000 1.000 .000 1.000 1.000 .000 1.000 .000 1.000 1.000 2.010 2.020 2.030 2040 2050 2.060 2.070 2.080 2.090 2.100 2.110 2.120 2.130 2140 2.150 2.160 2.170 2.180 2.190 2.200 3.508 3.539 3.57 3.606 3640 4.060 4.122 4.184 4246 4310 4.375 4.440 4.506 4.573 4.641 4.710 4.779 4.850 4921 4.993 5.066 5.141 5.215 5.291 5368 5.101 5 204 5 309 5 416 5526 5,637 5751 5867 985 6105 228 6.353 480 6610 6,742 6877 7.014 7.154 7.297 7442 1,000 2.250 3.813 5.766 8.207 7.913 8.115 8323 8536 8.74 8.977 9.207 9.442 9.683 9930 11.259 3.030 3060 3.091 3.122 3.153 3.184 3.215 3246 3.278 3310 3342 3.374 3.407 3440 10 10 410950114641200612578 13181 1381614 487 15193 1593716 722 17.549 18.42019337 20.304 21.321 22.393 23.521 2470925.959 33253 12 12.683 13 412 14.192 15 026 15917 16.870 17888 18 977 20.141 21 384 22.713 24.133 25.650 27 271 29.002 30850 32.824 34.931 37,180 39581 54 54.208 17 18,430 20 012 21.782 23 898 25840 28.213 30 840 33.750 38.974 40 545 44 501 48.884 53.739 59118 5.075 71.673 78979 87,088 96 022 105931 173.638 285.01 18 19.615 21.412 23.41425 645 28.132 30.906 33.999 37.450 41.301 45.599 50.39656.750 61.725 68394 .836 84.141 g3.406 103.74 115.27 128. 117 218.045 371.52 19 20.811 22841 25.117 27671 30539 33.760 37.379 41.446 46.018 51.159 56939 63.440 70749 78969 8.212 98603 110.28 123.41 13817 154.740 273.556 83.97 20 22.019 24 297 26.870 29.778 33.068 36.786 40.995 45.762 51.160 57 275 84.203 72.052 0947 91.025 102.444 115.390 130.033 148.628 165.418 188688 342.946 630.165 21 23.239 25.783 28.676 31.969 35.719 39.933 44.865 50 423 56.765 64.002 72.265 81.699 92.470 104768 118.810 134.841 153.139 174.021 197.847 225.026 429.61 820.215 22 24.472 27 299 30.537 34 248 38.505 43.392 49.008 55457 62.873 71.403 81 214 92.503 105491 120438 137,632 157,415 180.172 208.345 238.438 271.031 538.101 1,087.280 23 25.716 28.845 32.453 36.618 41430 46.936 53.436 60 833 69.532 79.543 91.148 104.603 120.205 138 297 153.276 183.601 211.801 244.487 282.362 326.237 673.626 1,388.464 24 26973 30422 34426 39083 4450250816581 776676576 79088497 02174118.155 136831 158659 184.168 213.978 248 808 289 494 337010 392484 843.033 1.806003 25 28.243 32.030 36.459 41.646 47.727 54.865 63.249 73.106 84.701 98.347 114.413 133.334 155.620 181.871 212.793 249.214 292.105 342.603 402.042 471.9811,054.791 2,348.803 26 29.526 33.671 38.553 44 312 51113 59.156 68.676 79 954 93 324 109.182 127999 150.334 176850 208333 245.712 290088 342.763 405.272 479431 567.377 1,319.489 3,054.444 27 30.821 35 344 40.710 47.084 54869 63.706 74.484 87 351102.723121.100 143.079 189.374 200.841 238.499 283.569 337.502 402.032 479.221 571.522 681.853 1,650.381 3,971.778 28 32.129 37.051 42.931 49 968 58.403 68.528 80.698 95 3391 12.968 134 210 159 817 190.699 227.950 272889 327.104 392.503 471.378 566.481 681.112 819.223 2,063.952 5,164.311 29 33.450 38 792 45 219 52968 62323 73.640 87.347103 966124.135148 831 178.397 214.583 258.583 312094 377.170 458.303 552.512 669.447 811.523 984.068 2,580.939 6,714.604 30 34.74056847.575 5605 66 439 79 058 94.461 113283136.308 164.494199021 241.333 293 199 356 787 434.745 530.312 647.439 790.948 g66.712 1,181.882 3,227.174 8729.985 35 41.660 49 994 60 462 73 652 90320111,435138 237172 317215.711271 024 341 590 431.663 548681 693573 881.1701,120.7131.426.491 1,816.6522,314214 2,948341 9,856.761 32,422.868 40 48.886 60.402 75.401 95.026 120800154.762199.635259 057337 882 442.593 681 826 767.091 1,013.7041,342 025 1,779.090 2,360.7673,134.522 4,163.2135,529.829 7,343858 30,088.655 120392.883 Nole. Al factors are founded to the nearest 1/000 in order to agree with values used in the text