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.

Week 2

Rosemary and Everett have provided you with additional information. They earn 6% on their portfolio and they anticipate 2.5% inflation. They sat down and looked at their expenses and they realized that they really cannot save $100,000 a year. More realistically they can save $50,000 a year with each employer adding an additional $10,000 to the savings.

Calculate their retirement needs and deficit, if one exists, using the revised numbers. Come up with 3 ways they can retiremaybe delaying retirement, lowering their WRR, earning a higher rate of return on invested assets (although you need to be able to tell them how to accomplish that), maybe a combination of several of these. Rosemary and Everett do NOT want you to include Social Security in this mix. Show them the 3 potential solutions and then explain which of the three you would recommend and why.

Week 3

Eleven years have passed since your first meeting with Rosemary and Everett. They retired at age 60 even though you may have advised differently. They have come to meet with you because they have decided to divorce. They are selling their house and the equity in the home will be enough for them each to buy a condominium without a mortgage. All other assets will be split 50/50. They have $3.5 million in retirement and other assets ($3 million in their 401k plans and $500,000 in other savings and investments) which will be divided. Rosemary is moving across the country and just came to close the financial planning relationship and say good-bye. Everett is staying in town and wants to continue as your client.

Advise Everett about how much he can spend each year once their assets are divided. He still anticipates living to age 100 and hes earning 6% on his portfolio; inflation is averaging 2.5%. Advise Everett about Social Security and Medicareoptions for claiming; when to sign up; etc. Hes 63 now, so should he claim now or should he waittell him why. Keep in mind that life will be very different financially for Everett, both now and in the future since he will be living on half of what they lived on before. So make sure your advice will help him adjust initially but also help him get by for the rest of his life.

Week 4

Three more years have passed; Everett is now 66. He has married again. His wife, Kayla, is 35 and has a 10 year old son, Ethan, who lives with them. Everett has gone back to work, making $80,000 (he was hurt by the time he spent away from the labor market so is making less than prior to retirement considering inflation). Kayla receives $700 per month in child support (the child support stops when Ethan turns 18). She worked at a minimum wage job at the local mall prior to their marriage, but now she is at home full time. Everett still owns the condo he purchased following the divorce and it is large enough for his new family.

Everett has not yet started collecting Social Security (regardless of what you may have advised earlier). He plans to work until age 75. He has $1.75 million in his 401k and $150,000 in other savings and investments. He is saving 10% of his salary in his 401k which his employer matches 50 cents on the dollar. His employers health insurance covers Everett, Kayla, and Ethan.

Everett has come to you because he wants to know your recommendation for collecting Social Security. He also wants to know how long he can continue to contribute to the 401k and will the required minimum distribution rules apply if he is still working. Everett says that he and Kayla live a fairly frugal lifestyle and they believe that they can afford to live on his salary and the child support plus $100,000 in savings (the other $50,000 will be saved for emergencies) until he retires.

Look at the information that Everett has provided. Based on what they plan to spend will they be able to support Everett until age 100; will there be anything left for Kayla once he has died? Are their plans realistic (remember, look at the numbersdont try to impose your values on them). Advise Everett.