5. Funding the nest egg shortfallDetermining Retirement ShortfallYuan and Alex have 40 years to retirement. They are taking a personal finance course and have calculated their projected retirement income andinvestment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of$6,750.00 per year.Use the following tables to answer the questions about future value interest factors.Interest Factors-Future Value Interest Factors-Future Value of an AnnuityPeriods 3.00% 5.00% 6.00% 8.00% 9.00%5.6001.8102.090 3.386 4.2902.653 3.210 4.6616.8488.6202.4204.3225.74010.06213.26020.4102.8105.5167.69014.78520253035403.2607.04010 28021 72431 410=The impact of the inflation factorContinuing their worksheet, they consult a friend, economics professor Dr. Wu, who believes that they can expect the average annual inflation rate tobe 5%, possibly 6% tops.Complete the following table by calculating inflation-adjusted annual shortfall for Yuan and Alex at 5%. Then recalculate the shortfall based on thetop rate provided by Dr. Wu. Interest rate Inflation-adjusted annual shortfall(Percent)56(Dollars)Funding the shortfallIn addition to determining a realistic inflation rate, Yuan and Alex talked to their financial advisor to understand rates of return now and after theyreach retirement. First, their advisor projects that in 40 years, they can realistically earn 5% on their nest egg. Second, he recommends aninvestment vehicle that is earning 6% annually.Complete the following table using the inflation-adjusted annual shortfall at 5% as previously calculated.Interest rate(Percent)56DescriptionAmount of retirement fund requirednual savings required to fund nest eggAmount of retirement funds required(Dollars)

Per year shortfall of fund=6750 per yearRequired time=40 yearsAs per the professorAverage…

Determining Retirement Shortfall Yuan and Alex have 40 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and investment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of $6,750.00 per year.

Determining Retirement Shortfall Yuan and Alex have 40 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and investment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of $6,750.00 per year.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5. Funding the nest egg shortfall
Determining Retirement Shortfall
Yuan and Alex have 40 years to retirement. They are taking a personal finance course and have calculated their projected retirement income and
investment needs. Based on their calculations and taking into account their Social Security and pension incomes, they have a projected shortfall of
$6,750.00 per year.
Use the following tables to answer the questions about future value interest factors.
Interest Factors-Future Value Interest Factors-Future Value of an Annuity
Periods 3.00% 5.00% 6.00% 8.00% 9.00%
5.600
1.810
2.090 3.386 4.290
2.653 3.210 4.661
6.848
8.620
2.420
4.322
5.740
10.062
13.260
20.410
2.810
5.516
7.690
14.785
20
25
30
35
40
3.260
7.040
10 280
21 724
31 410
=
The impact of the inflation factor
Continuing their worksheet, they consult a friend, economics professor Dr. Wu, who believes that they can expect the average annual inflation rate to
be 5%, possibly 6% tops.
Complete the following table by calculating inflation-adjusted annual shortfall for Yuan and Alex at 5%. Then recalculate the shortfall based on the
top rate provided by Dr. Wu.

Interest rate Inflation-adjusted annual shortfall
(Percent)
5
6
(Dollars)
Funding the shortfall
In addition to determining a realistic inflation rate, Yuan and Alex talked to their financial advisor to understand rates of return now and after they
reach retirement. First, their advisor projects that in 40 years, they can realistically earn 5% on their nest egg. Second, he recommends an
investment vehicle that is earning 6% annually.
Complete the following table using the inflation-adjusted annual shortfall at 5% as previously calculated.
Interest rate
(Percent)
5
6
Description
Amount of retirement fund required
nual savings required to fund nest egg
Amount of retirement funds required
(Dollars)

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