The Rolands would like to find out what retirement fund would be required if they planned to spend $285,000 annually for the first of retirement and then $170,000 for the remaining years. These planned expenditures are in today's dollars. If Social Security benefits are taken into account, what is the new retirement fund required for the Rolands under the capital utilization method?
ROLAND CASE The Rolands have come to see you on January 2. Neil Roland age 51 is an anesthesiologist and his wife Harriet age 49 is a lawyer. Neil has a practice at the hospital and shares an office with a partner in a nearby medical building. Neil and his partner conduct business as Roland and Shedd, LLP. Harriet works for a medium-size law firm and is the managing partner. Neil and Harriet have been married for 23 years, and they have three children ages 22, 20, and 10 The Rolands have already set aside suffcient assets for an education fund for their children. The Rolands own their own home which currently has a fair market value of $350,000. They have an unpaid mortgage balance of $100,000. The interest rate on the mortgage is 7.5%. Their monthly payment including principal, interest, taxes, and insurance is $1,400 Neil has an annual net income of $300,000, and Harriet has an annual salary of $90,000. Their adjusted gross income is $350,000 The Rolands have set a retirement objective of $260,000 in annual income. This amount is pre-tax and based on today's purchasing power. Neil currently has $800,000 in his account in a Keogh plan established by the partnership. The Keogh plan is for Neil, his partner, and their four other employees. Neil also has an IRA account balance of $60,000. Harriet has $180,000 in a 401 (k) plan which allows her to make elective deferrals ofup to 10% of her salary. The plan will match 50% of her deferrals up to 6% of income. Harriet is the beneficiary ofNell's retirement accounts, and Neil is the beneficiary of Harriet's retirement accounts Neil and Harriet are planning to retire when Neil is 66 (his full retirement age). They expect that inflation will average 3% both before and after they retire. They are both in excellent health and expect to live to age 90. They have invested their retirement funds in assets that have earned returns averaging 14% over the past four years. They expect that their assets will continue to earn approximately 11% annually until they both retire. After retirement, they expect that their investment returns will drop to approximately 8% annually. These returns are estimated on a pre-tax basis. The Rolands have received from the Social Security Administration statements of their earnings and estimate of future benefits showing that each of them will receive Social Security benefits of approximately $15,000 annually when they retire Harriet's mother, Elaine, will be 71 years of age on August 1 of this year. She is a widow and receives monthly Social Security payments of $1,000 as well as a pension of $1,750 monthly. She owns her own home and also has S200,000 in an IRA account as of December 31 of the year just ended. On December 31 of the previous year, the account was valued at $170,000. She has named Harriet as the beneficiary of the IRA. She works part time for Neil in his office and earns $15,000 per year. Neil does not make a Keogh contribution for her ROLAND CASE The Rolands have come to see you on January 2. Neil Roland age 51 is an anesthesiologist and his wife Harriet age 49 is a lawyer. Neil has a practice at the hospital and shares an office with a partner in a nearby medical building. Neil and his partner conduct business as Roland and Shedd, LLP. Harriet works for a medium-size law firm and is the managing partner. Neil and Harriet have been married for 23 years, and they have three children ages 22, 20, and 10 The Rolands have already set aside suffcient assets for an education fund for their children. The Rolands own their own home which currently has a fair market value of $350,000. They have an unpaid mortgage balance of $100,000. The interest rate on the mortgage is 7.5%. Their monthly payment including principal, interest, taxes, and insurance is $1,400 Neil has an annual net income of $300,000, and Harriet has an annual salary of $90,000. Their adjusted gross income is $350,000 The Rolands have set a retirement objective of $260,000 in annual income. This amount is pre-tax and based on today's purchasing power. Neil currently has $800,000 in his account in a Keogh plan established by the partnership. The Keogh plan is for Neil, his partner, and their four other employees. Neil also has an IRA account balance of $60,000. Harriet has $180,000 in a 401 (k) plan which allows her to make elective deferrals ofup to 10% of her salary. The plan will match 50% of her deferrals up to 6% of income. Harriet is the beneficiary ofNell's retirement accounts, and Neil is the beneficiary of Harriet's retirement accounts Neil and Harriet are planning to retire when Neil is 66 (his full retirement age). They expect that inflation will average 3% both before and after they retire. They are both in excellent health and expect to live to age 90. They have invested their retirement funds in assets that have earned returns averaging 14% over the past four years. They expect that their assets will continue to earn approximately 11% annually until they both retire. After retirement, they expect that their investment returns will drop to approximately 8% annually. These returns are estimated on a pre-tax basis. The Rolands have received from the Social Security Administration statements of their earnings and estimate of future benefits showing that each of them will receive Social Security benefits of approximately $15,000 annually when they retire Harriet's mother, Elaine, will be 71 years of age on August 1 of this year. She is a widow and receives monthly Social Security payments of $1,000 as well as a pension of $1,750 monthly. She owns her own home and also has S200,000 in an IRA account as of December 31 of the year just ended. On December 31 of the previous year, the account was valued at $170,000. She has named Harriet as the beneficiary of the IRA. She works part time for Neil in his office and earns $15,000 per year. Neil does not make a Keogh contribution for her
