(a)
To determine:
The annual needs of A & Y after retirement.
Introduction:
Annual needs means the amounts needs to spent on current expenses of the individual. An individual not only think for the present need but also consider the future needs and that is the reason they invest amount in retirement plans.

Explanation of Solution
Given,
The amount of current expenditure is $67,000.
The formula to calculate annual need is,
Substitute $67,000 for current expenditure in the above formula.
Thus, the annual needs of A & Y after retirement are $51,900.
(b)
To determine:
The annual requirement of A &Y in today’s dollars with the effect of taxes

Explanation of Solution
Given,
Annual need is $51,900 as calculated in part a.
Average tax rate is 12% at the time of retirement.
The formula to calculate the annual requirement is,
Substitute $51,900 for annual needs and tax rate is 12% in the above formula.
Thus, the annual requirement after adjusting for tax is $58,977.
(c)
To determine:
The projected annual income shortfall in today’s dollars.

Explanation of Solution
Given,
The annual requirement after adjusting for tax is $58,977 as calculated in part b.
The current expenditure excluding the amount of cruise is $57,000.
The formula to calculate annual income shortfall is,
Substitute $58,977 for annual requirement and $57,000 for current expenses in the above formula.
Thus, the projected annual income shortfall is $1,977.
(d)
To determine:
The

Explanation of Solution
Given,
Annual income shortfall is $1,977 as calculated in part c.
The retirement occurs after 30 years.
Inflation rate is 5%
The formula to calculate the future value of annual shortfall is,
Substitute $1,977 for present value of shortfall, 5% for inflation rate and 30years for n in the above formula.
Thus, future value of shortfall is $8,544.48.
(e)
To determine:
The annual investment need to fulfill the retirement goals.
Introduction:
Annual investment is the amount kept aside by the individual that is used in the future as retirement benefit. As after the retirement the source of income is not the salary so the individual has to save annually for the future.

Explanation of Solution
Given,
Future value of shortfall is $8,544.48 as calculated in part d.
The retirement occurs after 25 years.
The
The formula to calculate annual investment is,
Substitute $8,544.48 for future value of shortfall, rate of return is 8% and 25 years for n in the above formula.
Thus, the annual investment need to fulfill the retirement goals is $1,247.
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