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Retirement Planning

• Michael White (62)- Husband,


Professor of Economics at Cornell
School of Economics

• Laura White (61)- Wife, Teacher of


Pharmacology at Dominion High
School
Plans to retire
• Plan to retire in 6 years

• Michael turns 68 and Laura turns


67

• Expect to have the same life style


when they retire as they are
having now
Occupation and Plans
• Michael

Has a 401 (K) match plan (discussed


later)

• Laura

Has a 403 (b) plan (discussed later)


Net Worth Statement ( Balance Sheet)
Cash and cash
  equivalent          

Assets Regular Checking 24000 Liabilities      

  Regular Savings 32000 Short-term Balance on MasterCard 8000  

        Balance on car loan  7000  

  Investments     Student loan 4000  

  Mutual Fund 23000   Other debts 23000  

  Bonds 7000        

  403 (b) fund 147000 Long-term      

  401 (K) match plan 322000   Home mortgage 63000  

  Total investments 499000   Resort house mortgage 14000  

  Fixed and other Assets     Loan on land 32000  

  1999 Honda Accord 7800   Others 11000  

  2007 Honda Accord 27000        

  House 173000 Total   162000  

  Land 92000 Equity value/ Net worth      

  Resort House 130000 ( Assets- Liabilities)   863690  

  Home furnitures 21000        

  Clothes and others 4000        

  Laptops, TV etc. 4800        

  Other assets 11090        

  TOTAL 1025690        
Investment Portfolio- Passive and Diversified
• Bonds
City of Denver Municipal Bond ( 5.5%)

• Mutual Fund
- Vanguard 500 Index (Diversified)
- No front load
- No deferred load
- Expense 0.18%
- 3-year average 9% ( Might not be
too relevant)
403 (b) and 401 (k)
• Vanguard Balanced Index
-60.5% stock
- 1.8% cash
- 37.8 % bonds
• ETF s
• Russell 1000 growth index
• International value portfolio
• Hartford ( Needs to be
reconsidered)
Cash flow statement ( Including calculation for living expenses)  
Incoming cash (Revenue)     Outgoing cash (Expenses)  
      Fixed expenditure  

22,00
Michael's Salary 124,000   Everyday expenses (Food, clothes, etc.) 0

17,51
Laura's Salary 55,500   Automobile expenses 8
Tax refunds 1750   Loan expenses 6000

Dividents, interest, and other 
return
 in investment 46000   House and resort maintainance 2300
Rent income from Resort house 14,000   Utilities ( Gas, water, etc.) 1800

22,98
      Income and property tax 0
      Mortgage 9000
Total Income 241,250   Variable expenditure (2007)  
      California trip 3200
      France trip  6500

91,29
      Total expense 8
Alternative way for calculation of expenses:

Gross income
( Taxes)
(Savings)
= Expenses

Assumptions
• No more debt sustained
• No other savings done
Expense when they retire    
     
     
      Fixed expenditure    
  Everyday expenses (Food, clothes, etc.) 22,000
  Automobile expenses 9,000
  Loan expenses 0
  House and maintenance 2300
  Utilities ( Gas, water, etc.) 1800
  Income and property tax 11,000
  Mortgage 0
      Variable expenditure (2007)    
  Trip A 3200
  Trip B  6500
     
     
Total expense   55,800
Money needed to retire 55,800 (Yearly)  

With inflation adjustment      

PV= 55,800 I/y= 3% N= 6 FV= 66,628

Required amount 66,628    

Social security 23,000    

Other funds needed 43,628    

To calculate the money for retirement      

PV= 602,007 n=24 I/Y= 5% * PMT= 43,628

Assumptions and numbers      

n=24 ( From Joint life table)      

I/y ( Inflation adjusted) *(1+8%)/(1+3%)-1 5%  

To calculate how much they will have


when they retire,      

PV= 499000 I/y= 5% N=6 FV= 668,708


Questions???