Part 1
At the retirement planning meeting held recently, Richard and Monica were in agreement that they were well short of the money they needed for retirement at Richard's age 65. Monica said she was thinking of handling investments herself. Richard said he wanted to do it and thought that savings outside the pension given current lower tax rates for capital gains and dividends made sense.
1. Explain what do you think Monica's idea of taking control of retirement investing?
2. Explain what is your opinion of Richard's contention that saving outside the pension was best?
3. What are their alternatives in covering the shortfall in annual retirement savings?
4. What are your recommendations?
Part 2
Brad and Barbara also attended the meeting. They said they were too young to start saving for retirement. Retirement seemed "hundreds of years" away and they wanted to have fun today. They would have plenty of time to save for retirement when they were in their 50s.
1. How do you feel about their beliefs?
2. Explain the disadvantages of their approach.
3. Suppose they wanted to have $1 million accumulated in 40 years. Indicate how much money would have to be saved each year if they started now. Assume that the money would be accumulated in personal accounts and earn 6 percent a year after taxes.