Consider the case of Mike. He is just about to turn 62 years ofage and he has come to you to

help him determine if/when he can retire. Mike has provided youwith the following

information:

His current earnings are $100,000 annually

He used a “Top Down” retirement assessment and determined thathis retirement cash needs

would be equal to his annual earnings less his FICA tax, hismortgage of $1320/month, and

$5,000 per year of business/work related expense.

He does estimate that each year he waits to retire, his cashflow needs will increase by 2%.

Once he is retired, he should experience stable cash flows.

He currently has $425,000 in his retirement account.

He believes he should be able to earn a 6% rate of return on hisretirement account.

His Social Security statement indicates he should receive apayment of $2,685 per month at his

full retirement age (FRA) of 67. He is aware that his socialsecurity payments are reduced if he

starts taking payments early, and they will increase if hedefers taking social security payments

after age 67.

Mike expects to live until age 95.

He is interested in using an annuity method of capital needsanalysis.

Considering this fact pattern, Mike wants to know thefollowing:

1.

Can he afford to retire now, at age 62, based on his currentretirement account value,

reduced social security and cash flow needs?

2.

Can he afford to retire at his FRA of 67? If he is short ofcapital, how much would he

have to save each year to meet his goal?

3.

Can he afford to retire if he waits until age 70? If so, howmuch cash flow could he have

if he used a Capital Preservation strategy and assumed his 6%rate of return is

sustainable