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Mr. Jones is 40 years old. He wants to retire at age 62 with an 80% wage replacement ratio. He currently earns $100,000 and has managed to save $100,000 toward his retirement (including investments

Mr. Jones is 40 years old. He wants to retire at age 62 with an 80% wage replacement ratio. He currently earns $100,000 and has managed to save $100,000 toward his retirement (including investments and cash equivalents). He is currently saving $5,000 per year in his 401(k) plan. His employer matches 50% for contributions up to an employee elective deferral if 6%. His projected Social Security is $21,000 in today’s dollars and will be adjusted for inflation. He wants to plan for a life expectancy to age 95.

Economic Info

General inflation is expected to average 3.0% for the foreseeable future

Mr. Jones expected portfolio return is 8.5%

Mr. Jones tax rate is 25%

1. Calculate Mr. Jones capital needs at retirement.

2. Calculate Mr. Jones capital needs at age 40.

3. Calculate the annual savings needed to meet his retirement goal.

4. What is the additional capital required if Mr. Jones wants to have the same balance upon death as when he started retirement?

5. What is the additional capital required if Mr. Jones wants to have the same balance upon death (with the same purchasing power) as when he started retirement?

 

May 21 2021 View more View Less

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