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FLF 201 Midterm: Exam 3

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School
NCSU
Department
Foreign Language - French
Course
FLF 201
Professor
Katherine Morel

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Document Summary

Grady zebrowski, age 25, just graduated from college, accepted his first job with a ,000 salary, and is already looking forward to retirement in 40 years. He assumes a 3. 5 percent inflation rate and plans to live in retirement for 20 years. He does not want to plan on any social. Assume grady can earn an 8 percent rate of return on his investments prior to retirement and a 5 percent rate of return on his investments post-retirement to answer the following questions using your financial calculator. Grady wants to replace 90 percent of his current income. Annual need = salary * replacement % His annual need is ,000 x . 90 = ,000. Grady thinks he might have an average tax rate of 13 percent at retirement if he is married. If grady needs ,000 of after-tax income and his tax rate is 13%, he will really need ,000/(1 - . 13) = ,724.

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Related Questions

Parker is 50 and wants to retire in 15 years. His family has ahistory of living well into their 90s. Therefore, he estimates thathe will live to age 95. He currently has a salary of $120,000 andexpects that he will need about 65% of that amount annually if hewere retired. He can earn 9 percent in his portfolio while he isworking. However, he expects that he will only earn 7 percent inhis portfolio during retirement. He expects inflation to continueat 3 percent. Parker currently has $350,000 invested for hisretirement. His Social Security benefit in today’s dollars is$30,000 per year at normal age retirement of age 67. His SocialSecurity benefit will be reduced by 6 2/3 percent for each year hebegins collecting before full age retirement. How much does he needto save each year to meet his retirement goals?

Larry is 58 and wants to retire by age 65. He expects that hewill live to age 95. He currently has a salary of $140,000 andexpects that he will need about 72% of that amount annually if hewere retired. He can earn 9 percent in his portfolio while he isworking. However, he expects that he will only earn 7 percent inhis portfolio during retirement because he will adjust his assetallocation so that his portfolio is more conservative. He expectsinflation to continue at 3 percent. Larry currently has $800,000invested for his retirement. His Social Security benefit in today’sdollars is $24,000 per year, assuming a retirement of age 65. Hejust calculated what he needs to save each year and it is more thanhe can afford. How will the following alternative affect hisretirement plans (show your work):

a. Modify his portfolio duringretirement to achieve an 8% rate of return instead of a 7% rate ofreturn.

b. Delay his retirement by 2years.

c. Reduce his expected needs by$10,000 in today’s dollars.

d. None of the above will help himachieve his goals.

For this problem, you will need to upload your word document or excel file to receive full or partial credit.

Brothers, Mark and Mike Lalla want to plan for their retirement and need your advice.

Mark plans to travel extensively in the first 5 years of his retirement and will need $450,000 each year to do so. After that he will be able to live on $100,000 per year. Mark does not know how long he will live so once started, he needs to be able to withdraw the $100,000 each year forever.

Mike plans on having some income from a part time job in the first 5 years of his retirement so will only need $50,000 per year. He then plans on travelling lavishly for the next 6 years and will need $750,000 per year. He figures he will not live past that point so will not need any more funds.

Both men will retire next year and thus will need the first cash flow from his retirement fund at that time. If both can earn an 8% rate of return, calculate how much each brother will need today to realize his retirement dream. m