The Johnsons Consider Retirement Planning

Harry Johnson$$s father, William, was recently forced into early retirement at age $55$ because of poor health. In addition to the psychological drawbacks of the unanticipated retirement, William$$s financial situation is poor because he had not planned adequately for retirement. His situation has inspired Harry and Belinda to look at their own retirement planning. Together they now make about $$200,000$ per year $($$$110,000$ for Belinda and $$90,000$ for Harry$)$ and would like to have a similar level of living when they retire. Harry and Belinda are both in their early $40$s$,$ and they recently checked into their annual Social Security Benefits Statements, which indicated that they each could expect about $$32,000$ per year in today$$s dollars as retirement benefits in $25$ years at age $67.$ Although their retirement is a long way off, they know that the sooner they put a plan in place, the larger their retirement nest egg will be Appendix A$-4$ Present Value of a Series of Equal Amounts $($an Annuity of

$$1$ Received at the End of Each Period$)($Used to Compute the Discounted

Present Value of a Stream of Income Payments$)$ c$)$

For how many years would the retirement nest egg provide the amount of income indicated in part $($a$)?$ Assume a $4$ percent return after taxes and inflation. $($Hint: Use Appendix A$-4$ or visit the Garman$/$Forgue companion website.$)$