1. Retirement Needs Analysis

Question 1

Steps for Retirement Planning

Answer 1

Set goals.
Estimate the amount of assets needed at retirement (70-80% of current income)
Estimate income need at retirement.
Calculate the annual inflation-adjusted shortfall.
Calculate the funds needed to cover this shortfall.
Determine how much must be saved annually between now and retirement.
Put the plan in play and save.
Monitor the plan.

Question 2

Social security benefit for spouse

Answer 2

Spouse may collect greater amount of own or 50% of retired spouse’s benefit

Question 3

Medicare coverage and costs

Answer 3

-Part A provides hospital insurance benefits and is covered by social security
-Part B allows voluntary supplementary insurance and is paid by the individual

Question 4

Rollover witholding

Answer 4

20% is withheld if check from qualified is made payable to the participant

Question 5

Annuity payout options

Answer 5

• single life annuity
• annuity for life with period certain
• joint and survivor annuity

Question 6

Adjustment of current income replacement need with social security

Answer 6

Social Security retirement benefits will automatically be adjusted for inflation so the currently projected benefit is subtracted from the current income replacement need.

Question 7

Each of the following is a question that should be answered when planning for retirement in 15 years

Answer 7

Do I want to continue staying in my current house or do I want to move to another location?
Do I wish to travel after my retirement?
Do I want to have money to set aside for my family?

Question 8

Stavos, age 65, is retiring and expects to live in retirement until age 85. His current income is $250,000 per year and he wants to assume an income need of $250,000, in today’s dollars, throughout retirement. Using the capital preservation approach, what amount of capital does Stavos need on hand on day one of retirement to support this approach if he assumes he can earn 8% per year and inflation will be 2% throughout retirement?

Answer 8

Step 1: Capital utilization PVAD (BEG)
250,000, PMT
20, N
0, FV
(8-2) ÷ 1.02 = 5.8824 I/YR
Solve for PV = 3,065,367

Step 2: Discount Step 1 PVAD
3,065,367 FV
20, N
8, I/YR
Solve for PV = 657,669

Step 3: Add Step 2 result to Step 1 result.
657,669 + 3,065,367 = 3,723,036

Question 9

Saul, age 50, plans to retire at age 65 and expects to live in retirement until age 85. His current income is $250,000 per year and he wants to assume an income need of $250,000 throughout retirement. Using the capital utilization approach, what amount of capital does Saul need on hand on day one of retirement to support this approach if he assumes he can earn 8% per year and inflation will be 2% throughout retirement?

Answer 9

Note, that Saul is assuming a static income need of $250,000 per year throughout retirement. No inflation adjustments are required in this scenario.

Begin mode

250000 PMT

20 N

8 I/YR

Solve PV 2650900