Age = 33 years old, retire = 60 years old, and live until the age of 90 3% inflation rate. For example, if I am 33 years old, I want to retire when I am 60 and want $50,000 a year in today's dollars.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Step 1:  Calculate the future value of the money need.

 

Age = 33 years old, retire = 60 years old, and live until the age of 90

3% inflation rate. For example, if I am 33 years old, I want to retire when I am 60 and want $50,000 a year in today's dollars.

 

Step 2:  Calculate the present value of the money need for retirement.

Choose two rates of return to investigate and a lower conservative number such as the current 3 year CD rate and chose a higher more aggressive number such as rate of stock return but justify answer.

Include assumptions for future pension (give info on how calculated such as SURS website, etc.)  Subtract future pension flow from the Future Value needed in the first year of retirement.

Include assumptions for Social Security. Subtract future Social Security flow from the Future Value needed in the first year of retirement.

Include spouse in calculations, columns with both each have different pensions, Social Security, etc.

 

Step 3:  Calculate the annual amount need to save up

 

Take the number calculated in Step 2, divide it by 4%. 

Use the Present Value of Money to figure how much need to save yearly using this total amount in Step 3. 

Use the two different rates of return: 3 year CD rate and a stock rate of return.  Consider what stock rate of return want to use.  Use the number of years until retirement. 

Subtract any money currently have saved up right now for retirement.  Include 401Ks, IRAs, or any other money earmarked for retirement.

 

Questions:

 Surprised by the number?  It will be ready for retirement?

Prepare a paragraph answer with financial analysis

  • Does this project include Social Security?
  • Does it include pensions?
  • Include descriptions of techniques you will use to save for retirement such as increasing savings rates when receive promotions and raises.

 

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