QUESTION: Assuming both Keith and Cindy plan to live to age 95, how much money do the Rosses need today in their separate retirement portfolio to fund their retirement? (Assume a pretax portfolio. They will pay income taxes out of the gross retirement income.) PLEASE EXPLAIN QUESTION IN FULL DETAILS. PLEASE PROVIDE A SIMPLIFIED BREAKDOWN OF THE ANSWER AS WELL. THANK YOU.

Retirement Information Keith Keith has a profit-sharing plan at Ross Big-N-Tall, Inc., with a balance of $1.35 million Keith also has an IRA with a balance of $30,000 (see details). The IRA was established in 1999. 5/18/2017 12:31:34 Case 3 | Keith and Cindy Ross 39 Cindy is the beneficiary of all of Keith's retirement accounts. The contingent beneficiaries on Keith's retirement accounts are Susie, David, and Mary. They are designated as equal beneficiaries. Cindy Cindy has a Section 401(k) plan in which she is able to defer up to 16% of her salary. The accounting firm matches $0.25 for each $1.00 she defers, up to 6% of her salary. The firm's total match is 1.5% of compensation. Keith is the benefi- ciary of all of Cindy's retirement accounts. Keith and Cindy are retiring today. Both Keith and Cindy expect to live until age 95. Keith and Cindy have estimated that they need $250,000 per year in today's dollars for retirement. This amount would drop by 25% if only one was alive. Case 3 | Keith and Cindy Ross 41 STATEMENT OF FINANCIAL POSITION Keith and Cindy Ross As of January 1, 2017 Assets Cash/cash equivalents S2 Cash and checking? si Cash and checking Money market funds Total cash/equivalents s2 S1 $ 20,000 250,000 875,000 $1,145,000 Liabilities And Net Worth Liabilities Credit card balances $ 15,000 Short-term loan 10 230,000 Total liabilities $245,000 S1 $1,350,000 30,000 Invested assets S1 Profit-sharing planKeith S1 IRAKeith Section 401(k) plan vested interest-Cindy Growth Mutual Fund Due from KECI KECI Family Limited Partnership (capital) Common stock portfolio? Ross Big-N-Tall, Inc. 51 Common stock Total invested assets 150,000 53,100 70,500 1,193,600 100,000 2,250,000 $5,197,200 Net worth $7,539,200 Use assets JT Residence JT Personal property JT Autos Total use assets Total assets $1,000,000 400,000 42,000 $1,442,000 $7,784,200 Total liabilities and net worth $7,784,200 Notes to financial statements 'These are presented at fair market value. 2All liabilities are stated at principal only. All nonidentified liabilities are jointly owned. 'Cindy has a POD on this account naming Keith as her beneficiary. *Credit card interest rate is 18% Cash and checking earn 1.5% annually. The money market fund earns 4% annually. 7Publicly traded stock. *The value is an approximation of the value of the business made by Mr. Ross. The company is a C corporation with an adjusted tax basis of $25,000 Adjusted tax basis of home is $200,000 (Purchase price contributions: Keith 75% and Cindy 25%). 1This loan is personally guaranteed by Keith. Title designation: 51 = Keith only; S2 = Cindy only, JT = Joint tenants with right of survivorship STATEMENT OF CASH FLOWS Keith and Cindy Ross January 1, 2016 to December 31, 2016 (Expected to be similar in 2017) INFLOWS-ANNUAL Keith's salary $250,000 Cindy's salary 50,000 Dividend income 5,350 Interest income 39,050 Total inflows $344,400 OUTFLOWS-ANNUAL Savings and investments $56,600 $ 56,600 20,000 2,200 7,800 600 1,800 15,500 1,800 8,500 500 $ 58,700 Fixed outflows-annual Property taxes Homeowners insurance Utilities Telephone Auto insurance Life insurance policies Gas/oil/maintenance Credit card payments Umbrella insurance Variable outflows Taxes** Food Medical/dental Clothing/personal care Child care Entertainment/vacation College Kindergarten Total Outflows Net Cash Flow (deficit) $115,114 7,800 2,000 6,000 5,200 10,000 80,000 6,000 $232,114 $347,414 $ ($3,014) * Transfers to trust for life insurance Policy 1 are from net cash flow. **Notes on taxes FICA-Keith $ 10,972 [($118,500 x 0.062) + ($250,000 x 0.0145)] FICA-Cindy 3,825 Federal withholding-Keith 76,572 Federal withholding-Cindy 6,608 StateKeith 12,000 State-Cindy 3,000 9% Additional Medicare tax-MFJ ($50,000 x .009) 450 3.8% net investment income surtax (estimated-MFJ) $ 1,687 $115,114 Retirement Information Keith Keith has a profit-sharing plan at Ross Big-N-Tall, Inc., with a balance of $1.35 million Keith also has an IRA with a balance of $30,000 (see details). The IRA was established in 1999. 5/18/2017 12:31:34 Case 3 | Keith and Cindy Ross 39 Cindy is the beneficiary of all of Keith's retirement accounts. The contingent beneficiaries on Keith's retirement accounts are Susie, David, and Mary. They are designated as equal beneficiaries. Cindy Cindy has a Section 401(k) plan in which she is able to defer up to 16% of her salary. The accounting firm matches $0.25 for each $1.00 she defers, up to 6% of her salary. The firm's total match is 1.5% of compensation. Keith is the benefi- ciary of all of Cindy's retirement accounts. Keith and Cindy are retiring today. Both Keith and Cindy expect to live until age 95. Keith and Cindy have estimated that they need $250,000 per year in today's dollars for retirement. This amount would drop by 25% if only one was alive. Case 3 | Keith and Cindy Ross 41 STATEMENT OF FINANCIAL POSITION Keith and Cindy Ross As of January 1, 2017 Assets Cash/cash equivalents S2 Cash and checking? si Cash and checking Money market funds Total cash/equivalents s2 S1 $ 20,000 250,000 875,000 $1,145,000 Liabilities And Net Worth Liabilities Credit card balances $ 15,000 Short-term loan 10 230,000 Total liabilities $245,000 S1 $1,350,000 30,000 Invested assets S1 Profit-sharing planKeith S1 IRAKeith Section 401(k) plan vested interest-Cindy Growth Mutual Fund Due from KECI KECI Family Limited Partnership (capital) Common stock portfolio? Ross Big-N-Tall, Inc. 51 Common stock Total invested assets 150,000 53,100 70,500 1,193,600 100,000 2,250,000 $5,197,200 Net worth $7,539,200 Use assets JT Residence JT Personal property JT Autos Total use assets Total assets $1,000,000 400,000 42,000 $1,442,000 $7,784,200 Total liabilities and net worth $7,784,200 Notes to financial statements 'These are presented at fair market value. 2All liabilities are stated at principal only. All nonidentified liabilities are jointly owned. 'Cindy has a POD on this account naming Keith as her beneficiary. *Credit card interest rate is 18% Cash and checking earn 1.5% annually. The money market fund earns 4% annually. 7Publicly traded stock. *The value is an approximation of the value of the business made by Mr. Ross. The company is a C corporation with an adjusted tax basis of $25,000 Adjusted tax basis of home is $200,000 (Purchase price contributions: Keith 75% and Cindy 25%). 1This loan is personally guaranteed by Keith. Title designation: 51 = Keith only; S2 = Cindy only, JT = Joint tenants with right of survivorship STATEMENT OF CASH FLOWS Keith and Cindy Ross January 1, 2016 to December 31, 2016 (Expected to be similar in 2017) INFLOWS-ANNUAL Keith's salary $250,000 Cindy's salary 50,000 Dividend income 5,350 Interest income 39,050 Total inflows $344,400 OUTFLOWS-ANNUAL Savings and investments $56,600 $ 56,600 20,000 2,200 7,800 600 1,800 15,500 1,800 8,500 500 $ 58,700 Fixed outflows-annual Property taxes Homeowners insurance Utilities Telephone Auto insurance Life insurance policies Gas/oil/maintenance Credit card payments Umbrella insurance Variable outflows Taxes** Food Medical/dental Clothing/personal care Child care Entertainment/vacation College Kindergarten Total Outflows Net Cash Flow (deficit) $115,114 7,800 2,000 6,000 5,200 10,000 80,000 6,000 $232,114 $347,414 $ ($3,014) * Transfers to trust for life insurance Policy 1 are from net cash flow. **Notes on taxes FICA-Keith $ 10,972 [($118,500 x 0.062) + ($250,000 x 0.0145)] FICA-Cindy 3,825 Federal withholding-Keith 76,572 Federal withholding-Cindy 6,608 StateKeith 12,000 State-Cindy 3,000 9% Additional Medicare tax-MFJ ($50,000 x .009) 450 3.8% net investment income surtax (estimated-MFJ) $ 1,687 $115,114