Henry and Alice Richmond, both age 50, estimate their annual before-tax retirement income need to be approximately $100,000, in today's dollars. Based on their expected retirement income sources, they will Incur income deficits amounting to $60,000 annually, in today's dollars. You have established the following additional assumptions with them: 5% after-tax investment return .4% Inflation rate retirement at age 70 (20 years from now) . retirement period of 25 years Use the worksheet below to determine the lump sum amount the Richmonds will need at the beginning of retirement to fund their retirement income needs. 1. Adjust Income deficit for inflation over preretirement period: $60,000 present value of retirement income deficit 20 number of periods until retirement 4 % inflation rate $. Future value of income deficit in first retirement year II. Determine retirement fund needed to meet income deficit: payment (future value of income deficit in first retirement year) 25 number of periods of retirement income % Inflation-adjusted yield (rounded to four decimal places), determined using: 5% after-tax return 4% Inflation rate Lump sum needed at beginning of retirement (PVAD) to fund annual income deficit that increases annually with inflation (I.e., a growing annuity) $ Which one of the following amounts correctly represents the Richmonds' lump sum need? $2,895,318 $2,909,128 $2,924,271 $2,937,100 $3,695,403 Henry and Alice Richmond, both age 50, estimate their annual before-tax retirement income need to be approximately $100,000, in today's dollars. Based on their expected retirement income sources, they will Incur income deficits amounting to $60,000 annually, in today's dollars. You have established the following additional assumptions with them: 5% after-tax investment return .4% Inflation rate retirement at age 70 (20 years from now) . retirement period of 25 years Use the worksheet below to determine the lump sum amount the Richmonds will need at the beginning of retirement to fund their retirement income needs. 1. Adjust Income deficit for inflation over preretirement period: $60,000 present value of retirement income deficit 20 number of periods until retirement 4 % inflation rate $. Future value of income deficit in first retirement year II. Determine retirement fund needed to meet income deficit: payment (future value of income deficit in first retirement year) 25 number of periods of retirement income % Inflation-adjusted yield (rounded to four decimal places), determined using: 5% after-tax return 4% Inflation rate Lump sum needed at beginning of retirement (PVAD) to fund annual income deficit that increases annually with inflation (I.e., a growing annuity) $ Which one of the following amounts correctly represents the Richmonds' lump sum need? $2,895,318 $2,909,128 $2,924,271 $2,937,100 $3,695,403
