Use the following information to answer items 1-4:

Ronnie is about to retire today. He has $1,350,000 saved in his retirement investments. He expects to live another 25 years. His expected average investment return in retirement is 5%, and inflation is expected to average 3%.

If Ronnie wants each of his annual retirement withdrawals (starting now) to have the same purchasing power, and he wants to have $0 left in the account when he dies at time 25, what is the real amount of each withdrawal? (That is, what is the amount of money he will withdraw today?)

Given the scenario in #1, what is the dollar amount of Ronnie's withdrawal one year from now (his second withdrawal)?

Suppose Ronnie wants to take withdrawals annually, but wants to leave an inheritance of $1,350,000 when he dies. What is the new amount of his first withdrawal? (This is the capital preservation problems.)

Suppose Ronnie wants to leave the inheritance like in #3, but he wants the inheritance to have $1,350,000 in real purchasing power at time 25. What is the new amount of his withdrawal? (This is the purchase power preservation problem.)

Wendy is 25 years old today. She plans to make the maximum contribution to her Roth IRA every year until she is age 45. Then she plans to discontinue contributions and allow the funds to earn a rate of return until she is 65. If her rate of return averages 6%, how much money will she have at retirement? Assume no change to IRA contribution limits.

What will be the tax treatment of Wendy's (from #5) retirement withdrawals?

Kendra is 25 years old. Her salary now is $47,000 per year, and she expects raises with inflation. Inflation is expected to be 2.5%, and Kendra has access to a retirement investment plan that has an average return of 8%. Kendra plans to retire at age 67 with RLE= 20 years. Kendra's wage replacement ratio is 100%, and she does not plan on receiving Social Security.

How much money must Kendra have in savings at age 67 to retire at her desired standard of living?

Suppose your answer to part a is $1,000,000. If Kendra wants to leave this amount as an inheritance, what is her new retirement savings goal?Suppose your answer to part a is $1,000,000. If Kendra wants to leave this amount of real purchasing power as an inheritance, what is her new retirement savings goal?

Name three differences between a traditional IRA and a Roth IRA.

Liz is 62 years old and just paid $350,000 for a fixed life annuity. The annuity promises to pay a monthly benefit of $1,500. Liz' life expectancy is 27 years. How much of each payment is taxable income for Liz?

Webster retired in May of last year and began receiving monthly payments from a purchased retirement annuity on June 1. Webster paid $875,000 for the annuity. The annuity promises to pay Webster $5,460 per month until he dies. Webster had a life expectancy of 27 years when he bought the annuity.

How much of each annuity payment is EXCLUDED from tax for Webster?

How much taxable income will Webster report from this annuity last year?

What are the differences between an employer defined-benefit plan and a defined-contribution plan?