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 A Table of Future Value Factors Instructions: To use this table, find the future value factor that corresponds to both a given time period (year) and an interest rate. For example, if you want the future value 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 1 .772. Other illustrations for 3 years and 15%, the proper future value factor is 1 .521 ; for 30 years and 8%, it is 10.063. INTEREST RATE Period 1% 10% 111% 12% 13% 14% 15% 16% 17% 18% 25% 1.010 1.020 .030 1.040 .050 1060 1070 1.080 .090 100110 20 40 150 1160 1.170 .0 .190 .200 1.250 1.020 1040 0 .08 1.103 1124 1.145 1.168 1,188 1,210123 254 277 1300 1323 1346 1369 1392 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.200 1.295 1.331 1.368 1.405 1.443 1.482 |1.521| 1.561 1.602 1.643 1.5 1.728 1.953 1.041 1.082 .12 170 1.216 1262 1311 1.30 1.412 1.464 1518 1.574 1.830 1.689 1.749 11 18741.939 2.005 .074 2441 1.051 1.104 1.159 1.217 1.276 1338 1.403 1.469 1.539 16111.685 1.762 1842 925 2.011 2.100 2.192 2.288 2.386 2.488 3052 1.082 126 1.194 .265 1.340 1419 .501 .587 .6771.7721870 1.974 2.082 2.195 2.313 2.438 2.585 2.700 2.80 2.998 3815 1.072 .149 230 1.316 1407 1504 1806 1.714 1828 199 2076 2.211 2353 2.50 2.660 2826 3001 3.185 1.083 1.172 1.267 1.389 1.477 1.594 1.718 1.1 1.993 2.144 2.305 2.476 2.668 2.853 3.069 3.278 3.611 3.759 4.021 4.300 960 .094 1195 1.305 1,423 .55 1889 1838 1.999 2.172 2.358 2558 2.773 3.004 3.252 3.518 3803 4108 4435 4.785 5.180 7451 10.604 1.105 1219 1.344 1.480 1.629 1.731 1.967 2.159 2.367 2.584 2839 3.106 3395 3.707 4.046 4.411 4807 5234 5.5 6.192 9313 13.786 1.116 1243 .384 .539 .710 1898 2.105 2.332 2.580 2.853 3.152 3.479 3.836 4.226 4.652 5117 5824 .17 8.777 7.430 11.642 7.922 1.127 1268 426 1.601 .796 2012 2.252 2.518 2.813 3.138 3498 3896 4335 4818 5.350 5 936 6580 7.288 1.138 1.29 1.4691.66 1.886 2.133 2410 2.723.056 3.43883 4363 4 5.492 6.153 6.886 7699 8.699 9.596 10.699 18190 30.288 1.149 1319 1.513 1.732 1.980 2.261 2.579 2.93 3.342 3.797 4310 4887 5535 6.21 7076 7988 9007 10.147 11.420 12.839 22737 39 374 1.161 1346 1558 80 2.079 2397 2.759 3.172 3.642 177 4.785 5474 6254 7,138 8.137 9 266 10539 974 13.50 15.407 28422 51.186 1.173 1373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.596 5311 6.130 7.067 8.137 9.358 10.748 12330 14.129 6.172 18.488 35527 66.542 1.184 1400 1.663 .918 .292 2893 3.159 3.700 4.328 5.054 5895 966 7.998 9.278 10.761 12.468 14426 16.672 9.244 22.188 44.409 6.504 1.196 1428 1.702 2.026 2.407 2854 3.380 3.36 4.717 5.560 6544 7.690 9.024 10.575 12.375 14.463 16879 19.673 22.01 26.623 55511 112.455 1.208 1457 .7 2.07 .527 3.026 3.617 4.316 5.142 6.116 7.263 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948 69.389 146.192 1.220 1486 1.806 2.191 2.653 3207 3870 4661 5.4 6.727 8062 9646 11523 13.743 1636719 461 2310627 393 32.429 38338 86736 190 050 1.232 16 1.860 2.279 2.786 3.400 4.4 5.034 6.109 7.400 949 10904 3.02 15.668 18.822 22.574 27.034 32 324 38.591 46.005 108 420 247.065 1.245 1.54 .91 2.30 2.925 3804 4430 5.437 6.659 8.140 9 934 12.100 14.714788 21.645 28 186 31829 38.142 45.923 55.208 135 525 321.184 1.257 1577 1.974 2.465 3.072 3.820 4.741 5.871 7.258 8954 11.026 13.552 16.627 20.362 24.891 30.376 37006 45.008 54.64 66.247 169 407 417.539 1.270 1.808 2.033 2.53 3.22 4049 5072 6.341 7.911 9.850 12.239 15.179 18.788 23.212 28.825 35 236 43297 53.109 65.032 79.497 211.758 542.801 1.282 64 204 2.606 3.386 4292 5427 6.818 8.623 10.835 13585 7000 21231 26.462 32.919 0 874 50658 62669 77.388 95.396 264698 705641 1.295 1.673 2.167 2.772 3.556 4.549 5.807 7.306 9.329 11.918 15.080 9.040 23.991 30.167 37.867 47.414 59.270 73.949 92.092 114.475 33Q872 917.333 1.308 1.707 2.221 2.983 3.733 4.822 6.214 7.988 10.245 13.110 16.739 21.325 27.109 34.390 43.535 55.000 69.345 87260 109. 9 137.371 413590 1,192.533 1.321 1.7 2.28 2.999 3.920 5.112 6849 8.627 11.167 14.421 18580 23 894 3033 39.204 50.068 63 800 81.134 102 967 130,411 164.845 516988 1,550 293 1335 1.776 2.367 3.119 4.116 5.418 7.114 9.317 12.172 15.8 20624 26.750 34516 44.693 57.5757400994927 121.501 155.189 197.814 64 235 2,015.381 1.318 181 2427 3.243 4.322 5.743 7812 10.083 13.268 17.449 22.892 29980 39,116 50.950 66.212 85 850 111085 143 371 184.675 237.378 807794 2,819.99 1.417 2.000 2.814 3.96 5.516 7.686 10 677 14.785 20.414 28.102 38575 52.800 72.069 98.100 133.176 180 314 243 503 327 937 440.701 530.668 2,465 190 9,727.860 1.489 2.208 3.262 4.801 7.040 10286 14974 21.725 31.409 45.259 65001 3.051 132.782 188.884 267.864 378.721 533869 750378 1,051.668 1.463.772 7,523 164 36,118.865 1.300 1.690 2.197 2.858 3.713 4.827 6.275 8.157 1,416 1,440 1.563 3.379 3.583 4768 10 12 13 14 15 16 8.064 8.916 14552 23.298 18 21 26
