Jamie Winters is 40 years old and has never been married. Jamie currently earns $100,000 as an employee and has managed to save $100,000 towards his retirement goal. He is currently saving $5,000 per year in his 401(k) plan. His employers plan calls for a 50% match for contributions up to an employee elective deferral of 6%. Jamies primary goal, for this example, is to retire at age 62 with an 80% wage replacement ratio, including his social security benefit which is projected to be $30,000 in todays dollars at normal retirement age of 67. He wants to plan for a life expectancy to age 95. General inflation is expected to average 3% annually for the foreseeable future. Jamie expects his investment portfolio to produce an after-tax rate of return of 8.5%. Jamies marginal income tax rate is 25%.

Using the present value analysis, answer the following questions for Jamie.

1. If Jamie wants to retire at age 62 as he has indicated and he files for his social security benefit at age 62, how much money will he need annually to supplement his social security benefit to meet his desired 80% wage replacement ratio.

I am confused about how to obtain the value of social security at the age of 62 as opposed to 67, which will be subtracted from the expenses in retirement ($80,000) to get the answer.

2. Based on the needs in todays dollars identified in #1, what will be the amount of Jamies need at age 62 when he retires?