Monthly Budgeting
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Nov 24, 2024
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Introduction:
The case study of Bob Davidson presents a comprehensive overview of the financial and retirement
planning of a 46-year-old tenured professor. Bob is married and has a daughter, and is concerned about
building a secure future for his family. He has a stable job with a good salary, but also engages in
additional activities to supplement his income. Bob's goal is to work until he is 60 or 65 and retire
comfortably, travel and continue living in his small town. However, he is concerned about the risks he
may face and how to plan for them. In this report, we will use financial modelling techniques to evaluate
Bob's current financial situation, his future goals and objectives, and design a retirement plan to achieve
those goals.
Process of creating the model:
Gathering Data: The first step in creating a model for Bob's retirement plan is to gather relevant data
about his current financial situation. This includes his income, expenses, assets, liabilities, and other
financial investments. We will also gather information about Bob's family, such as his wife's income and
his daughter's college tuition expenses.
Identifying Goals: The next step is to identify Bob's retirement goals and objectives. We will consider his
goal of retiring at the age of 60 or 65, traveling extensively, and living modestly. We will also factor in his
desire to save for his daughter's college education.
Assessing Risk: As Bob's family has a history of early deaths from cancer, we will assess the potential risks
to his health and life. We will also consider other risks such as market volatility and inflation that can
impact his retirement savings.
Creating a Cash Flow Projection: Based on the gathered data and identified goals, we will create a cash
flow projection for Bob. This will help us determine his current and future income, expenses, and
savings. We will also factor in any unforeseen expenses and emergencies.
Calculating Retirement Income: Using the cash flow projection, we will determine the amount of
retirement income Bob will need to maintain his desired lifestyle. This will include his expenses for basic
needs, travel, healthcare, and other discretionary expenses.
Estimating Retirement Savings: Based on Bob's current savings, retirement contributions, and expected
returns on investments, we will estimate the amount he will have at retirement. We will also consider
different scenarios, such as early retirement or unexpected expenses, to determine if he has enough
savings to sustain his retirement lifestyle.
. Designing a Retirement Plan: Using the cash flow projection and estimated retirement savings, we will
design a retirement plan for Bob. This will include recommendations for investments, contribution
amounts, and strategies to mitigate risks.
Review and Adjustments: Once the retirement plan is in place, we will review and make necessary
adjustments periodically. This will ensure Bob's retirement plan remains on track and meets his changing
needs and circumstances.
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Related Questions
Using the photo attached, answer the following
c. What is Ben’s total investment value at retirement (age 65)?
DO NOT USE EXCEL TO ANSWER
arrow_forward
Throughout this book, we will present a continuing narrative about Harry and Belinda Johnson. Following is a brief description of the lives of this couple.Harry is 28 years old and graduated five years ago with a bachelor's degree in interior design from a large Midwestern university near his hometown in Indiana. Since graduation Harry has been working in small interior design firm in Kansas City earning a salary of about $45,000.Belinda is 27, has a degree in business administration from a university on the West Coast, and has been employed in a medium-size manufacturing firm in California for about five years. Harry and Belinda both worked on their schools' student newspapers and met at a conference during their junior year in college.After all these years they met again socially in January in Kansas City, Missouri where Belinda was visiting relatives and by chance she and Harry were at the same museum. After getting reacquainted they started dating and in only a matter of months…
arrow_forward
Your clients Aiden, 35, and Delora, 37, have had many life changes in the past year. Aiden secured a new job and a large raise. They welcomed their second child and now have two children under four years old. To accommodate the baby, they renovated and refinanced their existing mortgage. Delora will be a stay at home mom and no longer has group insurance coverage through her employer. They meet with you to discuss how these changes might impact their needs for insurance. Which of the following statements concerning Aiden and Delora's insurance needs is correct?
a)
The newborn child is a minor and will be covered under the existing coverage.
b)
Their insurance needs should not consider Delora since she is no longer earning an income under her stay at home mom status.
c)
The mortgage was refinanced and the bank would be responsible for providing mortgage insurance.
d)
Aiden may need additional coverage if his new employer offers less group life insurance than his previous…
arrow_forward
Danny and Sandy have come to your office to discuss some retirement planning issues. Danny will be turning age 65 in five months and Sandy is currently 63. Danny has not started collecting Social Security benefits yet because he is still working, and he is unsure whether he will retire this year or wait a few more years. Sandy has never worked outside the home. If he continues to work, Danny will have health insurance for both himself and Sandy through his employer with a $250 annual per person deductible, a 90% coinsurance, and a maximum out-of-pocket limit of $5,000. Danny’s share of the premium is $50 per pay. Many of their retirement questions have to do with Medicare and health insurance because both Danny and Sandy have existing health issues. All the following statements are proper advice for you to give Danny and Sandy, EXCEPT:
Danny should delay enrollment in Medicare Part B until he is no longer covered under his employer’s health plan.
Sandy will be eligible for…
arrow_forward
Lindsay is 25 years old and has a new job in web development. Lindsay wants to make sure that they are financially sound in 30 years. So, Lindsay plans to invest the same amount into a retirement account at the end of every year for the next 30 years. Note that because Lindsay invests at the end of the year, there is no interest earned on the contribution for the year in which Lindsay contributes.
(a)
Construct a spreadsheet model that will calculate Lindsay's retirement savings given a fixed annual amount saved and a fixed annual interest rate of return. If Lindsay invests $13,000 at an annual return of 7%, how much will be in the retirement account (in dollars) at the end of 30 years? (Round your answer to the nearest dollar.)
$
(b)
Develop a two-way table for annual investment amounts of $5,000 to $20,000 in increments of $1,000 and for returns of 0% to 12% in increments of 1%. Using the table, what are the minimum annual investments Lindsay must contribute (in dollars) for…
arrow_forward
Samantha Montgomery (age 42) is employed by Canon Company and is paid an annual salary of $62,430. She has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Montgomery: Round your answer to the nearest cent.
a. What is the maximum that she can contribute into this retirement fund?
$fill in the blank 1
b. What would be the company's contribution?
$fill in the blank 2
Note: For items c. & d. below, round interim amounts to two decimal places. Use these values in subsequent computations then round final answer to two decimal places.
c. What would be her weekly take-home pay with the retirement contribution deducted (married, 2 allowances, wage-bracket method, and a 2.3% state income tax on total wages)?
Click here to access the Wage-Bracket Method Tables.
$fill in the blank 3
d. What would be her weekly take-home pay without the retirement contribution deduction?
$fill in the blank 4
arrow_forward
Velma, a 59-year-old minority woman who works as a teacher, contacts you about getting a loan to purchase a condominium. As you’re chatting, she indicates that she’s hoping to retire from teaching in three years. You take her financial and personal information and see that you should be able to get her the amount she needs to purchase the home and now you need to discuss terms. You share some loan options with her and she insists that she’s only interested in an adjustable-rate mortgage because she wants the lower monthly payments to start and is convinced the interest rates will stay low or go down even further.
1. What should you share with Velma about an ARM loan given her situation? Are you obligated to help her apply for the loan she wants?
arrow_forward
Larry Kraft owns a restaurant that is open 7 days a week. He has 25 fulltimeemployees, but he has fairly high employee turnover. He believes thathe can stabilize his workforce if he has a pension plan for his employees.Larry hears about a small business retirement plan called the SIMPLE IRA.What are the qualifications and limitations for him to establish this plan?
arrow_forward
Sam is currently 30 years of age. He owns his own business and wantsto retire at the age of 60. He has little confidence in the current SocialSecurity system. He wants to retire with an annual income of $72,000a year.a. If Sam believes he will live to age 90, how much does he have to accumulateby the time he reaches age 60 to receive $72,000 at the end of each yearfor the rest of his life? Sam believes he can earn 8 percent on his money in astock mutual fund.b. How much does he have to accumulate if he wants the payment of $72,000at the beginning of each year?c. What dollar amount of interest will Sam have earned during retirement if hereceives his $72,000 at the beginning of each year?
arrow_forward
George Clausen (age 48) is employed by Kline Company and is paid an annual salary of $42,640. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the
following for Clausen:
a. What is the maximum that he can contribute into this retirement fund?
$
12,500 ✓
b. What would be the company's contribution?
$
X
Note: For items c. & d. below, round interim amounts two decimal places. Use these values in subsequent computations then round final answer to two decimal places.
c. What would be his weekly take-home if he contributes the maximum allowed retirement contribution (married, allowances, wage-bracket method, and a 2.3 % state income tax on total wages)?
Click here to access the Wage-Bracket Method Tables.
$
X
d. What would be his weekly take-home pay without the retirement contribution deduction?
X
arrow_forward
With the photo attached, answer the following
a. In your assessment, who will have the higher retirement value at age 65, Ben or Arthur (no calculation required)? Justify your response.
NO EXCEL....full working
DO NOT USE EXCEL TO ANSWER
arrow_forward
Case Study: Time value of money
Mr. Road has reached his seventieth birthday and is ready to retire. Mr.
Road has no formal training in finance but has saved his money and invested
carefully.
Mr. Road owns his home (the mortgage is paid off) and does not want to
move. He is a widower, he wants to bequeath the house and any remaining
assets to his daughter.
He has accumulated savings of $180,000, conservatively invested. The
investments are yielding 9% interest. Mr. Road also has $12,000 in a savings
account at 5% interest. He wants to keep the savings account intact for
unexpected expenses or emergencies.
Mr. Road's basic living expenses now average about $1,500 per month, and
he plans to spend additional $500 per month on travel and hobbies. To
maintain this planned standard of living, he will have to rely on his
investment portfolio. The interest from the portfolio is $16,200 per year (9%
of $180,000), or $1,350 per month.
Mr. Road will also receive $750 per month in social security…
arrow_forward
Molly Lincoln, a 25-year-old personal loan officer at First National Bank, understands the importance of starting early when it comes to saving for retirement. She has committed $3,500 per year for her retirement fund and assumes that she'll retire at age 65.
How much will Molly have accumulated when she turns 65 if she invests in equities and earns 8 percent on average? Round your answer to the nearest dollar.
Molly is urging her friend, Isaac Stein, to start his plan right away, too, because he's 45. What would his nest egg amount to if he invested in the same manner as Molly and he, too, retires at age 65? Round your answer to the nearest dollar.
2a. Nest egg at 4%
2b. Nest egg at 8%
arrow_forward
STORY (very similar to what was shown in class): YOU and your BEST FRIEND just graduated from college. You both went to the same college and majored in the same field. You both started working at age 22 in the same workplace. Each of you decided upon a different course of action for your respective retirement plans. Assuming each plan earned 10% and both of you decided to retire at age 60, calculate the earnings each plan generated. Upon the advice of your Personal Finance professor (hint, hint), YOU began immediately putting $6,000 per year in an individual retirement account (IRA) and $19,500 per year in a 401K. You contributed for a total of 15 years. After 15 years, you made no further contributions into the account. Your BEST friend, did not contribute to their retirement accounts until they turned 30, even though you both worked in the same place and received the same plans. They had planned to simply invest $6000 and $19,500 each year for the remaining years until they retired…
arrow_forward
STORY (very similar to what was shown in class): YOU and your BEST FRIEND just graduated from college. You both went to the same college and majored in the same field. You both started working at age 22 in the same workplace. Each of you decided upon a different course of action for your respective retirement plans. Assuming each plan earned 10% and both of you decided to retire at age 60, calculate the earnings each plan generated.
Upon the advice of your Personal Finance professor (hint, hint), YOU began immediately putting $6,000 per year in an individual retirement account (IRA) and $19,500 per year in a 401K. You contributed for a total of 15 years. After 15 years, you made no further contributions into the account.
Your BEST friend, did not contribute to their retirement accounts until they turned 30, even though you both worked in the same place and received the same plans. They had planned to simply invest $6000 and $19,500 each year for the remaining years until they…
arrow_forward
Victor and Maria Hernandez Look at Future Income
Throughout this book, we will present a continuing narrative about Victor and Maria Hernandez. Following is a brief description of the lives of this couple.Victor and Maria, both in their late 30s, have two children: Jacob, age 13, and Nicholas, age 15. Victor has had a long sales career with a retail appliance store in Fargo, North Dakota earning $55,000 annually. Maria works as a medical records assistant earning $31,000.
Victor and Maria regularly buy and sell a number of items on eBay, Craig's List, and through the free community newspaper, from which they earn about $5,000 each year. What is the accumulated future value of those annual amounts over 22 years if the annual earnings were invested regularly and provided a 5 percent return each year? (Hint: Use Appendix A-3.) Round your answer to nearest dollar. Round Future Value of Series of Equal Amounts in intermediate calculations to four decimal places
$
What would Victor and…
arrow_forward
Amy Parker, a 22-year-old and newly hired marine biologist, is quick to admit that she does not plan to keep close tabs on how her 401(k) retirement plan will grow with
time. This sort of thing does not really interest her. Amy's contribution, plus that of her employer, amounts to $2,100 per year starting at age 23. Amy expects this
amount to increase by 4% each year
until she retires at the age of 67 (there will be 45 EOY payments). What is the compounded future value of Amy's 401(k) plan if it earns 7% per year?
arrow_forward
I need help in calculating the answers for c and d. The answers for a and b already done. I have inserted the tables for c and d. Here's the question: George Clausen (age 48) is employed by Kline Company and is paid an annual salary of $42,640. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen: Round your answer to the nearest cent.
As we go to press, the federal income tax rates for 2023 are being determined by budget talks in Washington, and are not available for publication. For this edition, the 2022 federal income tax tables for Manual Systems with Forms W-4 from 2020 or Later with Standard Withholding and 2022 FICA rates have been used.
a. What is the maximum that he can contribute into this retirement fund?
$fill in the blank 1
b. What would be the company's contribution?
$fill in the blank 2
Note: For items c. & d. below, round interim amounts to two decimal places. Use these…
arrow_forward
Case, Part 1: Velma, a 59-year-old minority woman who works as a teacher, contacts you about getting a loan to purchase a condominium. As you’re chatting, she indicates that she’s hoping to retire from teaching in three years. You take her financial and personal information and see that you should be able to get her the amount she needs to purchase the home, and now you need to discuss terms. You share some loan options with her and she insists that she’s only interested in an adjustable rate mortgage, because she wants the lower monthly payments to start and is convinced the interest rates will stay low or go down even further.
1. What should you share with Velma about an ARM loan given her situation? Are you obligated to help her apply for the loan she wants?
arrow_forward
Karen has been moonlighting as a life coach. This year she made over $65,000 and would like to not realize some of those earnings, maybe in a retirement account. However, she already contributes $6,000 to her qualified retirement plan at her regular employer. What can she do?
A : She can contribute some of the $65,000 in a Keogh plan, if she stops participating in her employer’s plan.
B : She can contribute some of the $65,000 in an employee stock ownership plan.
C : She can contribute some of the $65,000 in a Keogh plan.
D : She cannot do anything because she has a qualified retirement plan available at her employer.
arrow_forward
Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $65,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the…
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SEE MORE QUESTIONS
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Related Questions
- Using the photo attached, answer the following c. What is Ben’s total investment value at retirement (age 65)? DO NOT USE EXCEL TO ANSWERarrow_forwardThroughout this book, we will present a continuing narrative about Harry and Belinda Johnson. Following is a brief description of the lives of this couple.Harry is 28 years old and graduated five years ago with a bachelor's degree in interior design from a large Midwestern university near his hometown in Indiana. Since graduation Harry has been working in small interior design firm in Kansas City earning a salary of about $45,000.Belinda is 27, has a degree in business administration from a university on the West Coast, and has been employed in a medium-size manufacturing firm in California for about five years. Harry and Belinda both worked on their schools' student newspapers and met at a conference during their junior year in college.After all these years they met again socially in January in Kansas City, Missouri where Belinda was visiting relatives and by chance she and Harry were at the same museum. After getting reacquainted they started dating and in only a matter of months…arrow_forwardYour clients Aiden, 35, and Delora, 37, have had many life changes in the past year. Aiden secured a new job and a large raise. They welcomed their second child and now have two children under four years old. To accommodate the baby, they renovated and refinanced their existing mortgage. Delora will be a stay at home mom and no longer has group insurance coverage through her employer. They meet with you to discuss how these changes might impact their needs for insurance. Which of the following statements concerning Aiden and Delora's insurance needs is correct? a) The newborn child is a minor and will be covered under the existing coverage. b) Their insurance needs should not consider Delora since she is no longer earning an income under her stay at home mom status. c) The mortgage was refinanced and the bank would be responsible for providing mortgage insurance. d) Aiden may need additional coverage if his new employer offers less group life insurance than his previous…arrow_forward
- Danny and Sandy have come to your office to discuss some retirement planning issues. Danny will be turning age 65 in five months and Sandy is currently 63. Danny has not started collecting Social Security benefits yet because he is still working, and he is unsure whether he will retire this year or wait a few more years. Sandy has never worked outside the home. If he continues to work, Danny will have health insurance for both himself and Sandy through his employer with a $250 annual per person deductible, a 90% coinsurance, and a maximum out-of-pocket limit of $5,000. Danny’s share of the premium is $50 per pay. Many of their retirement questions have to do with Medicare and health insurance because both Danny and Sandy have existing health issues. All the following statements are proper advice for you to give Danny and Sandy, EXCEPT: Danny should delay enrollment in Medicare Part B until he is no longer covered under his employer’s health plan. Sandy will be eligible for…arrow_forwardLindsay is 25 years old and has a new job in web development. Lindsay wants to make sure that they are financially sound in 30 years. So, Lindsay plans to invest the same amount into a retirement account at the end of every year for the next 30 years. Note that because Lindsay invests at the end of the year, there is no interest earned on the contribution for the year in which Lindsay contributes. (a) Construct a spreadsheet model that will calculate Lindsay's retirement savings given a fixed annual amount saved and a fixed annual interest rate of return. If Lindsay invests $13,000 at an annual return of 7%, how much will be in the retirement account (in dollars) at the end of 30 years? (Round your answer to the nearest dollar.) $ (b) Develop a two-way table for annual investment amounts of $5,000 to $20,000 in increments of $1,000 and for returns of 0% to 12% in increments of 1%. Using the table, what are the minimum annual investments Lindsay must contribute (in dollars) for…arrow_forwardSamantha Montgomery (age 42) is employed by Canon Company and is paid an annual salary of $62,430. She has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Montgomery: Round your answer to the nearest cent. a. What is the maximum that she can contribute into this retirement fund? $fill in the blank 1 b. What would be the company's contribution? $fill in the blank 2 Note: For items c. & d. below, round interim amounts to two decimal places. Use these values in subsequent computations then round final answer to two decimal places. c. What would be her weekly take-home pay with the retirement contribution deducted (married, 2 allowances, wage-bracket method, and a 2.3% state income tax on total wages)? Click here to access the Wage-Bracket Method Tables. $fill in the blank 3 d. What would be her weekly take-home pay without the retirement contribution deduction? $fill in the blank 4arrow_forward
- Velma, a 59-year-old minority woman who works as a teacher, contacts you about getting a loan to purchase a condominium. As you’re chatting, she indicates that she’s hoping to retire from teaching in three years. You take her financial and personal information and see that you should be able to get her the amount she needs to purchase the home and now you need to discuss terms. You share some loan options with her and she insists that she’s only interested in an adjustable-rate mortgage because she wants the lower monthly payments to start and is convinced the interest rates will stay low or go down even further. 1. What should you share with Velma about an ARM loan given her situation? Are you obligated to help her apply for the loan she wants?arrow_forwardLarry Kraft owns a restaurant that is open 7 days a week. He has 25 fulltimeemployees, but he has fairly high employee turnover. He believes thathe can stabilize his workforce if he has a pension plan for his employees.Larry hears about a small business retirement plan called the SIMPLE IRA.What are the qualifications and limitations for him to establish this plan?arrow_forwardSam is currently 30 years of age. He owns his own business and wantsto retire at the age of 60. He has little confidence in the current SocialSecurity system. He wants to retire with an annual income of $72,000a year.a. If Sam believes he will live to age 90, how much does he have to accumulateby the time he reaches age 60 to receive $72,000 at the end of each yearfor the rest of his life? Sam believes he can earn 8 percent on his money in astock mutual fund.b. How much does he have to accumulate if he wants the payment of $72,000at the beginning of each year?c. What dollar amount of interest will Sam have earned during retirement if hereceives his $72,000 at the beginning of each year?arrow_forward
- George Clausen (age 48) is employed by Kline Company and is paid an annual salary of $42,640. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen: a. What is the maximum that he can contribute into this retirement fund? $ 12,500 ✓ b. What would be the company's contribution? $ X Note: For items c. & d. below, round interim amounts two decimal places. Use these values in subsequent computations then round final answer to two decimal places. c. What would be his weekly take-home if he contributes the maximum allowed retirement contribution (married, allowances, wage-bracket method, and a 2.3 % state income tax on total wages)? Click here to access the Wage-Bracket Method Tables. $ X d. What would be his weekly take-home pay without the retirement contribution deduction? Xarrow_forwardWith the photo attached, answer the following a. In your assessment, who will have the higher retirement value at age 65, Ben or Arthur (no calculation required)? Justify your response. NO EXCEL....full working DO NOT USE EXCEL TO ANSWERarrow_forwardCase Study: Time value of money Mr. Road has reached his seventieth birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home (the mortgage is paid off) and does not want to move. He is a widower, he wants to bequeath the house and any remaining assets to his daughter. He has accumulated savings of $180,000, conservatively invested. The investments are yielding 9% interest. Mr. Road also has $12,000 in a savings account at 5% interest. He wants to keep the savings account intact for unexpected expenses or emergencies. Mr. Road's basic living expenses now average about $1,500 per month, and he plans to spend additional $500 per month on travel and hobbies. To maintain this planned standard of living, he will have to rely on his investment portfolio. The interest from the portfolio is $16,200 per year (9% of $180,000), or $1,350 per month. Mr. Road will also receive $750 per month in social security…arrow_forward
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