Use Worksheet 14.1 to help Georgia and Jude Sullivan determine how much they need to retire early in about 20 years. Both have promising careers, and both make good money. As a result, they're willing to put aside whatever is necessary to achieve a comfortable lifestyle in retirement. Their current level of household expenditures (excluding savings) is around $80,000 a year, and they expect to spend even more in retirement; they think they'll need about 125% of that amount. (Note: 125% equals a multiplier factor of 1.25). They estimate that their Social Security benefits will amount to $26,000 a year in today's dollars and they'll receive another $39,000 annually from their company pension plans. Georgia and Jude feel that future inflation will amount to about 3% a year, and they think they'll be able to earn about 6% on their investments before retirement and about 4% afterward. See Appendix A and Appendix B.
- Use Worksheet 14.1 to find out how big Sullivans' investment nest egg will have to be. Round your answer to the nearest dollar. $ __________
- How much they'll have to save annually to accumulate the needed amount within the next 20 years. Round your answer to the nearest dollar. $ __________
1. Estimated Household Expenditures in Retirement: A. Approximate number of years to retirement B. Current level of annual household expenditures, excluding savings C. Estimated household expenses in retirement as a percent of current expenses D. Estimated annual household expenditures in retirement (BXC) II. Estimated Income in Retirement: E. Social security, annual income F. Company/employer pension plans, annual amounts G. Other sources, annual amounts H. Total annual income (E+F+G) 1. Additional required income, or annual shortfall (D-H) 1.000 II. Inflation Factor: J. Expected average annual rate of inflation over the period to retirement K. Inflation factor in Appendix A): Based on years to retirement (A) and an expected average annual rate of inflation (1) of 0% L. Size of inflation-adjusted annual shortfall (1 x K) V.Funding the Shortfall: M. Anticipated return on assets held after retirement N. Amount of retirement funds required-size of nest egg (L+M) O. Expected rate of return on investments prior to retirement P. Compound interest factor in Appendix B): Based on 0 years to retirement (A) and an expected rate of return on investments of 0% Q. Annual savings required to fund retirement nest egg (N+P) 0.000 APPENDIX A Table of Future Value Factors Instructions: To use this table, find the future value factor that corresponds to both a given time period (year) and an interest rate. For example, if you want the future value factor for 6 years and 10%, move across from year 6 and down from 10% to the point at which the row and column intersect: 1.772. Other illustrations: for 3 years and 15%, the proper future value factor is 1.521; for 30 years and 8%, it is 10.063. INTEREST RATE 3 Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1 .030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.041 1.082 1.126 1.170 1.216 1.2621.311 1.360 1.412 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 9 1.094 1.195 1.305 1.423 1551 1689 1.838 1.999 2.172 10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 13 1 .138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4,328 1. 196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 1.208 1.457 1 754 2.107 2.527 3.026 3.617 4.316 5.142 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 1.232 1.516 1.860 2.279 2.786 3.400 4.141 5.034 6.109 1.245 1.546 1.916 2.370 2.925 3.604 4.430 5.437 6.659 1.257 1.577 1.974 2.465 3.072 3.820 4.741 5.871 7.258 1.270 1.608 2.033 2.563 3.225 4.049 5.072 6.341 7.911 1.282 1.641 2.094 2.666 3.386 4.292 5.427 6.848 8.623 1.295 1.673 2.157 2.772 3.556 4.549 5.807 7.396 9.399 1.308 1.707 2.221 2.883 3.733 4.822 6.214 7.988 10.245 1.321 1.741 2.288 2.999 3.920 5.112 6.649 8.627 11.167 1.335 1.776 2.357 3.119 4.116 5.418 7.114 9.317 12.172 1.348 1.811 2.427 3.2434.322 5.743 7.612 10.063 13.268 35 1.417 2.000 2.814 3.946 5.516 7.686 10.677 14.785 20.414 1.489 2.208 3.262 4.801 7.040 10286 14.974 21.725 31.409 Note: All factors are founded to the nearest 1/1000 in order to agree with values used in the text. 10% 11% 12% 1.100 1.110 1.120 1.210 1.232 1.254 1.331 1.368 1.405 1.464 1.518 1.574 1.611 1.685 1.762 1.772 1.870 1.974 1.949 2.076 2.211 2.144 2.305 2.476 2.358 2.558 2.773 2.594 2.839 3.106 2.853 3.152 3.479 3.138 3.498 3.896 3.452 3.883 4.363 3.797 4.310 4.887 4.1774.785 5.474 4.595 5.311 6.130 5.054 5.895 6.866 5.560 6.544 7.690 6.116 7.263 8.613 6.727 8.062 9.646 7.400 8.949 10.804 8.140 9.934 12.100 8.954 11.026 13.552 9.850 12.239 15.179 10.835 13.585 17.000 11.918 15.080 19.040 13.110 16.739 21.325 14.421 18.580 23.884 15.863 20.624 26.750 17.449 22.892 29.960 28.102 38.575 52.800 45.259 65.001 93.051 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200 1.250 1.300 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440 1.563 1.690 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728 1.953 2.197 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074 2.441 2.856 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488 3.052 3.713 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986 3.815 4.827 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583 4.768 6.275 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300 5.960 8.157 3.004 3.252 3,518 3.903 4108 4.435 4.785 5.160 7.451 10.604 3.395 3.707 4.046 4.411 4.807 5.234 5.695 6.192 9 .313 13.786 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430 11.642 17.922 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916 14.552 23.298 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699 18.190 30.288 5.535 6.261 7.076 7.988 9,007 10.147 11,420 12.839 22.737 39.374 6.254 7.138 8.137 9.266 10.539 11.974 13.500 15.407 2 8.422 51.186 7.067 8.137 9.358 10.748 12.330 14.129 16.172 18.488 35.527 66.542 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186 44.409 86.504 9.024 10.575 12.375 14.463 16.879 19.673 22.901 26.623 55.511 112.455 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948 69.389 146.192 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338 86.736 190.050 13.021 15.668 18.822 22.574 27.034 32.324 38.591 46.005 108.420 247.065 14.714 17.861 21.645 26.186 31.629 38.142 45.923 55.206 135.525 321.184 16.627 20.362 24.891 30.376 37.006 45.008 54.649 66.247 169.407 417.539 18.788 23.212 28.625 35.236 43.297 53.109 65.032 79.497 211.758 542.801 21.231 26.462 32.919 40.874 50.658 62.669 77.388 95.396 264.698 705.641 23.991 30.167 37.857 47.414 59.270 73.949 9 2.092 114.475 330.872 917.333 27.109 34.390 43.535 55.000 69.345 87.260 109.589 137.371 413.590 1,192.533 30.633 39.204 50.066 63.800 81.134 102.967 130.411 164.845 516.988 1,550.293 34.616 44.693 57.575 74.009 94.927 121.501 155.189 197.814 646.235 2,015.381 39.116 50.950 66.212 85.850 111.065 143.371 184.675 237.376 807.794 2,619.996 72.069 98.100 133.176 180.314 243.503 327.997 440.701 590.668 2,465.1909,727.860 132.782 188.884 267.864 378.721 533.869 750.378 1,051.668 1,469.772 7,523.164 36,118.865 APPENDIX B Table of Future Value Annuity Factors Instructions: To use this table, find the future value of annuity factor that corresponds to both a given time period (year) and an interest rate. For example, if you want the future value of annuity factor for 6 years and 10%, move across from year 6 and down from 10% to the point at which the row and column intersect: 7.716. Other illustrations: for 3 years and 15%, the proper future value of annuity factor is 3.473; for 30 years and 6%, it is 79.058. INTEREST RATE 5 Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2.010 2.020 2.030 2.040 2.050 2.060 2.070 2.080 2.090 2.100 2.110 2.120 2.130 2.140 2.150 2.160 2.170 2.180 2.190 2.200 2.250 2.300 3.030 3.060 3.091 3.122 3.153 3.184 3.215 3.246 3.278 3.310 3.342 3.374 3.407 3.440 3.473 3.506 3.539 3.572 3.606 3.640 3.813 3.990 4.060 4.122 4.184 4.246 4310 4.375 4.440 4.506 4.573 4.641 4.710 4.779 4.850 4.921 4.993 5.066 5.141 5.215 5.291 5.368 5.766 6.187 5 .101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105 6.228 6.353 6.480 6.610 6.742 6.877 7.0147.154 7.297 7.442 8.207 9.043 6.152 6.308 6.468 6.633 6.802 6.975 7.153 7.336 7.523 7.716 7.913 8.115 8.323 8.536 8.754 8.977 9.207 9.442 9.683 9.930 11.259 12.756 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.200 9.487 9.783 10.089 10.405 10.730 11.067 11.414 11.772 12.142 12.523 12.916 15.073 17.583 8 8.286 8.583 8.892 9.214 9.549 9.897 10.260 10.637 11.028 11.436 11.859 12.300 12.757 13.233 13.727 14.240 4.773 15.327 15.902 16.499 19.842 23.858 9.369 9.755 10.159 10.583 11.027 11.491 11.978 12.488 13.021 13.579 14.164 14.776 15.416 16.085 16.786 17.519 18.285 19.086 19.923 20.799 25.802 32.015 10.462 10.950 11.464 12.006 12.578 13.181 13.816 14.487 15.193 15.937 16.722 17.549 18.420 19.337 20.304 21.321 22.393 23.521 24.709 25.959 33.253 42.619 11.567 12.169 12.808 13.486 14 207 14.972 15.784 16.645 17.560 18.531 19.561 20.655 21.814 23.045 24.349 25.733 27.200 28.755 30.404 32.150 42.566 56.405 12.683 13.412 14.192 15.026 15.917 16.870 17.888 18.977 20.141 21.384 22.713 24.133 25.650 27.271 29.002 30.850 32.824 34.931 37.180 39.581 54.208 74.327 13.809 14.680 15.618 16.627 17.713 18.882 20.141 21.495 22.953 24.523 26.212 28.029 29.985 32.089 34.352 36.786 39.404 42.219 45.244 48.497 68.760 97.625 14.947 15.974 17.086 18.292 19.599 21.015 22.550 24.215 26.019 27.975 30.095 32.393 34.883 37.58140.505 43.672 47.103 50.818 54.841 59.196 86.949 127.913 16.097 17.293 18.599 20.024 21.579 23.276 25.129 27.152 29.361 31.772 34.405 37.280 40.417 43.842 47.580 51.660 56.110 60.965 66.261 72.035 109.687 167.286 16 17.258 18.639 20.157 21.825 23.657 25.673 27.888 30.324 33.003 35.950 39.190 42.753 46.672 50.980 55.717 60.925 66.649 72.939 79.850 87.442 138.109 218.472 18.430 20.012 21.762 23.698 25840 28.213 30.840 33.750 36.974 40.545 44.501 48.884 53.739 59.118 65.075 71.673 78.979 87.068 96.022 105.931 173.636 285.01 18 19.615 21.412 23.414 25.645 28.132 30.906 33.999 37.450 41.301 45.599 50.396 55.750 61.725 68.394 75.836 84.141 93.406 103.74 115.27 128.117 218.045 371.52 19 20.811 22.841 25.117 27.671 30.539 33.760 37.379 41.446 46.018 51.159 56.939 63.440 70.749 78.969 88.212 98.603 110.28 123.41 138.17 154.740 273.556 483.97 22.019 24.297 26.870 29.778 33.066 36.786 40.995 45.762 51.160 57.275 64.203 72.052 80.947 91.025 102.444 115.380 130.033 146.628 165.418 186.688 630.165 23.239 25.783 28.676 31.969 35.719 39.993 44.865 50.423 56.765 64.002 72.265 81.699 92.470 104.768 118.810 134.841 153.139 174.021 197.847 225.026 429.681 820.215 24.472 27.299 30.537 34.248 38.505 43.392 49.006 55.457 62.873 71.403 81.214 92.503 105.491 120.436 137.632 157.415 180.172 206.345 236.438 271.031 538.101 1,067.280 25.716 28.845 32.453 36.618 41.430 46.996 53.436 60.893 69.532 79.543 91.148 104.603 120.205 138.297 159.276 183.601 211.801 244.487 282.362 326.237 673.626 1,388.464 24 26.973 30.422 34.426 39.083 44.502 50.816 58.177 66.765 76.790 88.497 102.174 118.155 136.831 158.659 184.168 213.978 248.808 289.494 337.010 392.484 843.033 1,806.003 25 28.243 32.030 36.459 41.646 47.727 54.865 63.249 73.106 84.701 98.347 114.413 133.334 155.620 181.871 212.793 249.214 292.105 342.603 402.042 471.981 1,054.791 2,348.803 26 29.526 33.671 38.553 44.312 51.113 59.156 68.676 79.954 93.324 109.182 127.999 150.334 176.850 208.333 245.712 290.088 342.763 405.272 479.431 567.377 1,319.489 3,054.444 30.821 35.344 40.710 47.084 54.669 63.706 74.484 87.351102.723121.100 143.079 169.374 200.841 238.499 283.569 337.502 402.032 479.221 571.522 681.853 1,650.361 3,971.778 32.129 37.051 42.931 49.968 58.403 68.528 80.698 95.339112.968 134.210 159.817 190.699 227.950 272.889 327.104 392.503 471.378 566.481 681.112 819.223 2,063.952 5.164.311 33.450 38.792 45.219 52.966 62323 73.640 87.347103.966124.135 148.631 178.397 214.583 258.583 312.094 377.170 456.303 552.512 669.447 811.523 984.068 2,580.939 6,714.604 34.785 40.568 47.575 56.085 66.439 79.058 94.461113.283136.308 164.494 199.021 241.333 293.199 356.787 434.745 530.312 647.439 790.948 966.712 1,181.882 3,227.174 8,729.985 35 41.660 49.994 60.462 73.652 90320111.435138.237172.317215.711271.024 341.590 431.663 546.681 693.573 881.170 1,120.7131,426.491 1,816.6522,314.214 2,948.341 9,856.761 32.422.868 40 48.886 60.402 75.401 95.026 120 800154.762199.635259.057337.882442.593 581.826 767.091 1,013.7041,342.025 1,779.090 2,360.7573,134.522 4.163.2135,529.829 7,343.858 30,088.655 120,392.883 Note: All factors are founded to the nearest 1/1000 in order to agree with values used in the text
