Project Narrative, Part 1

Everett and Rosemary Sexauer, a married couple, both age 52, have come to meet with you and have several questions about retirement. They tell you that they want to retire at age 60 at 100% WRR. Everett earns $80,000 and Rosemary earns $120,000. Everett has saved $600,000 in his 401(k) and Rosemary has $900,000 in her 401(k). Neither Everett nor Rosemary anticipate major salary increases in the future and both plan to stay with their current employers until retirement. They do, however, anticipate cost of living raises to match inflation. Currently Everett contributes $8,000 per year to his 401(k) and Rosemary contributes $12,000 and their employers match 50 cents on the dollar.

Both Rosemary and Everett expect to live to age 100.

They have 3 children who have all finished college and are all married so Everett and Rosemary are ready to max out their retirement savings. They anticipate they could save 50% of their annual earnings for the next 8 years. Their employers will contribute a maximum of $10,000 per year to their accounts.

For week 1:

1. Calculate what lump sum Rosemary and Everett need to accumulate by the day they retire to meet their stated retirement goals; how much must they save each year until retirement to reach this goal (keep what is currently being contributed in your discussion, they are currently saving $20,000 per year which their employers match 50% so talk to them about how much they must save per year and how much the amount exceeds their current contributions; please keep in mind 401k contribution limits). Both of their employers will match 401k contributions 50 cents on the dollar up to a maximum possible employer contribution of $10,000 per year.

2. Advise them if all of their savings should be in the 401k plans or should other savings instruments be used as well. If other savings instruments are advised, explain why and how much should be saved in accounts other than the 401k plans.

3. Based on their current incomes, find an estimate of what their annual Social Security benefits would be at full retirement age.

4. If your findings indicate that their retirement goal may be difficult to reach, discuss their

options for retirement (think about the impact of Social Security on their overall needs,

might they consider modifying their WRR or delaying retirement, are they willing to

accept more risk to increase the rate of return, etc.) Whatever the option, be sure to

explain to Everett and Rosemary how the option can be achieved and how it will make

their retirement dream more realistic.