Economic and investment information


Larry is 40 year old and has never married. He wants to retire at age 62 with an 80% wage replacement ratio. Larry currently earns $100,000 as an employee and has managed to save $100,000 towards his retirement goal (including investment assets and cash equivalents). 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%.

Financial Goal: Larry's primary goal, for this example, is to retire at 62 with an 80% wage replacement, including Social Security, 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.

Economic and Investment Information:

General inflation is expected to average 3.0% annually for the foreseeable future.
Larry's expected investment portfolio rate of return is 8.5%
Larry's marginal income tax rate is 25%.


Q1. Calculate how much Larry will need on the day he retires to meet his retirement goal.

Q2. Calculate how much he needs to save regularly to meet his retirement goal. (Discuss if he can meet his current retirement goal with his current savings pattern).

Q3. Provide 3 alternatives for Larry to consider and explain why each alternative might work. (Explain why each alternative might or might not work and explain why).

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Finance Basics: Economic and investment information
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