Ryan and Rebecca have 30 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 $6,250.00 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 Excel Periods 3.00% 5.00% 6.00% 8.00% 9.00% 20 1.810 2.653 3.210 4.661 5.600 25 2.090 3.386 4.290 6.848 8.620 30 2.420 4.322 5.740 10.062 13.260 35 2.810 5.516 7.690 14.785 20.410 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. Garcia, 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 Ryan and Rebecca at 5%. Then recalculate the shortfall based on the top rate provided by Dr. Garcia. Interest rate Inflation-adjusted annual shortfall (Percent) (Dollars) 5 6 Funding the shortfall In addition to determining a realistic inflation rate, Ryan and Rebecca talked to their financial advisor to understand rates of return now and after they reach retirement. First, their advisor projects that in 30 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 Description Amount of retirement funds required (Percent) (Dollars) 5 Amount of retirement fund required 6 Annual savings required to fund nest egg

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

Ryan and Rebecca have 30 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 $6,250.00 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

Excel

Periods	3.00%	5.00%	6.00%	8.00%	9.00%
20	1.810	2.653	3.210	4.661	5.600
25	2.090	3.386	4.290	6.848	8.620
30	2.420	4.322	5.740	10.062	13.260
35	2.810	5.516	7.690	14.785	20.410
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. Garcia, 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 Ryan and Rebecca at 5%. Then recalculate the shortfall based on the top rate provided by Dr. Garcia.

Interest rate	Inflation-adjusted annual shortfall
(Percent)	(Dollars)
5
6

Funding the shortfall

In addition to determining a realistic inflation rate, Ryan and Rebecca talked to their financial advisor to understand rates of return now and after they reach retirement. First, their advisor projects that in 30 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.