**18.2- Eleanor needs $40,000 a year to live on in retirement net of the income she will receive. She will be retiring in 22 years and is funding for a 25 year retirement. The inflation rate is expected to be 3.5 percent a year and the after-tax return on her investments is 6 percent.**

**a. How much will the short fall amount to at the beginning of the retirement period?**

**b. What lump sum will she need at the beginning of the retirement period?**

**c. What is the required yearly savings?**

** **

**18.3- Frank, age 28, wants to calculate his resources in real (inflation-adjusted) terms. Calculate the amount of resources made available by age 65 retirements if $18,000 a year is saved. Assume that outflow’s from ages 65 to 90 are at the rate of $27,000 a year. The projected inflation rate is 4 percent, and the anticipated investment return is 6 percent. **

** **

**a. ****How much in new savings will Frank have available at age 65 before subsequent withdrawals?**

**b. ****How much will he have left at age 90?**

**c. ****What is the present value of that sum at age 65?**

**d. ****How much will he have to save per year to exactly meet his need?**

** **

**18.4- 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 differences 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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Due By (Pacific Time) | 10/06/2013 11:00 pm |

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