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Jamie Winters Retirement Planning Case Jamie Winters is 40 years old and has never been married Jamie currently earns $100,000 as an employee and has managed to save $100,000 towards his retirement goal. He is currently saving $5,000 per year in his 401(k) plan. His employer's plan calls for a 50% match for contributions up to an employee elective deferral of 6%. Jamie's primary goal, for this example, is to retire at age 62 with an 80% wage replacement ratio, including his social security benefit which is projected to be $30,000 in today's dollars at normal retirement age of 67 . He wants to plan for a life expectancy to age 95 General inflation is expected to average 3% annually for the foreseeable future. Jamie expects his investment portfolio to produce an after-tax rate of return of 8.5%. Jamie's marginal income tax rate is 25%. Using the present value analysis, answer the following questions for Jamie. 1. If Jamie wants to retire at age 62 as he has indicated and he files for his social security benefit at age 62 , how much money will he need annually to supplement his social security benefit to meet his desired 80% wage replacement ratio. FV=PV$100,00080%=$80,000$30,000=$50,000 Amt needed to supplement =$80,000$30,000=$50,000 per year 2. Based on the needs in today's dollars identified in \#1, what will be the amount of Jamie's need at age 62 when he retires? FV= Desired Ann. Retir Inc * (1+lnflRate)# of years =$80,00091+0.03)22+ $80,0001.808177=$144,654.16 = Future Retirement Income PV=$144,654.16/(1+0.085)22=$144,654.16/7.2495643=$19,941.09FS$Ben@67=$30,000(1+0.03)(6740)=$30,0002.2375328=$67,125.98PV=$67,125.98t(1+0.085)27=$67,125.98/5.2111311=$12,[email protected]@62=$19,941.09+$12,881.11=$32,822.20 3. Given Jamie's life expectancy, expected after-tax rate of return, and projected inflation rate, how much money should Jamie have accumulated by age 62 to cover his needs throughout retirement? FV of SS @ 62=$30,0000.8135=$24,405, Ann. Ret Exp =$80,0002.9786= $238,288 PVSS @ 62=$24,405/4,4130=$5,533 FV 401K@62=$100,0003.2886+$5,00025.9613=$328,860+129,807 =$458.667 Tot Exp.Cov @62= $238,288$5,533=$232,755 PV Remaining Exp. @ 62=$232,755/4,4130=$52,776 Tot. Acc. @62=$5,533+$52,776=$58,309 4. If the answer to #3 is the amount of money Jamie will need to have accumulated by the time he retires at age 62 , how much should he currently have in his retirement savings? PV=$80,000$30,000=$50,000/22years=$2273=$2273(1+0.03)22=$48,000 5. Based on the amount Jamie should have already saved for retirement (answer to \#4) and what he currently has saved, how much will Jamie need to save each year for his remaining work life to meet his retirement goal? Adjusted Add. Income needed =$50,000(1+0.03)(9562)=$50,0006.170= $308,500 PV=$308,500/(1+0.085)n33=$38,129

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