Sara Woodyard, age forty-four, plans to retire at age sixty-seven. Her life expectancy, accounting for family...

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Sara Woodyard, age forty-four, plans to retire at agesixty-seven. Her life expectancy, accounting for family medicalhistory, is age ninety-seven. Tara is single and currently earns$56,000 per year as a university librarian. At her normalretirement age, she expects to receive $28,700 in Social Securitybenefits (today’s dollars). She will also receive a small definedbenefit pension in the amount of $13,500 from a local municipality.She has come to you to determine whether she is on track to meether retirement goal. Use the following assumptions and informationto answer the questions that follow:
She would like to use a 90 percent income replacement ratio,based on current earnings.
She is currently contributing $2,400 per year into a 403(b) plan[no employer match].
Inflation is assumed to be 3.50 percent.
She can earn a 6.50 percent after-tax rate of return on assetsbefore retirement.
She can earn a 4.50 percent after-tax rate of return on assetsafter retirement.
How much does Tara need, on her first day of retirement, to funda capital depletion model
of retirement?
Given her current level of savings, is Tara on target to reachher retirement goal?
If she has a capital needs shortfall, how much more must shesave per year to reach her goal?
If she would like to obtain a capital preservation goal forretirement, how much will she need to have saved on her first dayof retirement?
Given a capital preservation goal, is she saving enough on ayearly basis currently?
How much, in total, must she save yearly to reach a capitalpreservation model of retirement?

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4.0 Ratings (398 Votes)

Taras need is 50400 9056000 Income replacement model First Let us ascertain Taras need on the first day of retirement If Tara is going to need 50400 for 30 years hence the future vale of this total need would be 2608178293 by formula FVAn A1kn1k assuming See Answer

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Sara Woodyard, age forty-four, plans to retire at agesixty-seven. Her life expectancy, accounting for family medicalhistory, is age ninety-seven. Tara is single and currently earns$56,000 per year as a university librarian. At her normalretirement age, she expects to receive $28,700 in Social Securitybenefits (today’s dollars). She will also receive a small definedbenefit pension in the amount of $13,500 from a local municipality.She has come to you to determine whether she is on track to meether retirement goal. Use the following assumptions and informationto answer the questions that follow:She would like to use a 90 percent income replacement ratio,based on current earnings.She is currently contributing $2,400 per year into a 403(b) plan[no employer match].Inflation is assumed to be 3.50 percent.She can earn a 6.50 percent after-tax rate of return on assetsbefore retirement.She can earn a 4.50 percent after-tax rate of return on assetsafter retirement.How much does Tara need, on her first day of retirement, to funda capital depletion modelof retirement?Given her current level of savings, is Tara on target to reachher retirement goal?If she has a capital needs shortfall, how much more must shesave per year to reach her goal?If she would like to obtain a capital preservation goal forretirement, how much will she need to have saved on her first dayof retirement?Given a capital preservation goal, is she saving enough on ayearly basis currently?How much, in total, must she save yearly to reach a capitalpreservation model of retirement?