Tom and Debbie are starting to take their retirement planningseriously. They are both 46 and plan to retire in 20 years at theage of 66. They expect to live 15 years in retirement (a lifeexpectancy of 81). Between their 401k and IRA accounts, theycurrently have $67,966 in retirement savings.

They currently have a combined income of $88,000 per year andexpect to be able to live comfortably in retirement with 80% oftheir current purchasing power. They expect inflation to be 2% peryear for the rest of their lives. They also expect to earn 11.0%per year (the average return on Blue Chip stocks) on theirinvestments, both now and in retirement.

Conduct an analysis of their retirement planning needs andprovide them with a professionally written letter. In the letterand attached schedules provide information that answers thefollowing questions. Please include a description of the relevantassumptions and any explanatory comments that make the resultseasier to understand.

1. What amount of annual income will they need (after adjustingfor inflation) in each of the fifteen years of retirement to havethe purchasing power of 80% of their current income?

2. Assuming they will continue to earn 11.0% on theirinvestments, how much money will they need to have in theirretirement accounts when they retire so that it will provide thefifteen years of income? (note: at the end of the 15 years theaccount balance should be zero.)

3. Taking into account what they currently have in savings, howmuch will they have to save each month to meet their retirementneeds?

4. Sensitivity analysis: Redo the analysis assuming that theyonly earn 9% on their investments, instead of 11.0%. Determine theneeded amounts so they have the money they need in retirement.

Note: Assume that all payments will be made at the end of theperiod (ordinary annuity).