Annuity

| December 7, 2015

The smiths had $110,000 in savings at age 51. They had a desired retirement age of 65. They want to fund through age 92. Assume a 4 percent inflation rate and a 5 percent after-tax rate for investment both pre- and postretirement. They have household income of $140,000, which is increasing at the rate of inflation. Their expenditures including taxes are $125,000 a year. They estimate that in retirement they will receive $28,000 a year together in Social Security and Mr. Smith will receive a $12,000-a-year pension, both in today�s dollars. Their retirement expenditures would be $90,000 a year in today�s dollars.

1. Calculate:

a. The lump sum needed at retirement.

b. Current assets available at retirement

c. Yearly savings needed.

d. The difference between needs and resources.

2. Analysis:

a. Is their retirement plan achievable as is?

b. If not, what are the alternatives that could help reconcile needs and resources?

c. What is your recommendation?

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