Managerial Report: Financial Planning Simulation for Arrow Consulting

Objective: Develop a concise simulation model for financial planning and provide insights for employees.

$20-$Year Projection without Variability:

Extend the current worksheet to $20$ years.

Expected value with constant annual salary growth $(5\%)$ and portfolio growth $(10\%)$: $$807,130.$

Determine the required annual investment rate for a $20-$year, $$1,000,000$ goal using Goal Seek.

Redesigned Simulation Model:

Incorporate variability in annual salary growth $(0\%$ to $5\mathrm{.}1\%)$ and portfolio growth $($mean $9\mathrm{.}85\%,$ SD $4\mathrm{.}9\%)$ into the simulation.

Use the annual investment rate predicted in part $1.$

Simulate Kieran's $20-$year financial plan.

Uncertainty and Recommendations:

Discuss the uncertainty associated with reaching the $$1,000,000$ goal.

Recommendations for employees with a profile similar to Kieran's:

Regularly adjust investment strategies.

Save more during favorable market conditions.

Diversify investments to mitigate risks.

Assessment of $25-$Year Plan:

If Kieran considers working $25$ years, assess the strategy's viability for a $$1,000,000$ portfolio.

Template for Company Employees:

Describe how the financial planning model can be customized for other employees.

Highlight its adaptability to individual circumstances and goals.Will you be able to retire when you want? What will your retirement account be worth when you plan to retire?

How much of your salary should you invest now and over time to reach your targeted account value? The

Human Resources Department at Arrow Consulting was asked to develop a financial planning model that

would help employees address these questions. Kieran Gosby was asked to lead this effort and decided to

begin by developing a financial plan for himself. Kieran has a degree in business analytics and, at the age of $40,$

is making $$85,150$ per year. Through contributions to his company's retirement program and the receipt of a

small inheritance, Keiren has accumulated a portfolio with a current value of $$55,000.$ Keiren plans to work $20$

more years and hopes to accumulate a portfolio valued at $$1,000,000.$ Can he do it$?$

Kieran began with a few assumptions about his future salary, his new investment contributions, and his

portfolio growth rate. He assumed a $5\%$ annual salary growth rate and plans to make new investment

contributions at $6\%$ of his salary. After some research on historical stock market performance, Kieran decided

that a $10\%$ annual portfolio growth rate was reasonable. Using these assumptions, Kieran developed an Excel

worksheet that provides a financial projection for the next five years. In computing the portfolio earnings for a

given year, Kieran assumed that his new investment contribution would occur evenly throughout the year, and

thus half of the new investment could be included in the computation of the portfolio earning for the year.

From the worksheet, we see that, at age $45,$ Kieran is projected to have a portfolio valued at $$124,437.$

Arrow Consulting