Tom and Debbie are starting to take their retirement planning seriously. They are both 46 and plan to retire in 20 years at the age of 66.
They expect to live 15 years in retirement (a life expectancy of 81). Between their 401k and IRA accounts they currently have $67,966 in retirement savings.
They currently have a combined income of $88,000 per year and expect to be able to live comfortably in retirement with 80% of their current purchasing power. They expect inflation to be 2% per year for the rest of their lives.
They also expect to earn 11.0% per year (the average return on Blue Chip stocks) on their investments, both now and in retirement.
Conduct an analysis of their retirement planning needs and provide them with a professionally written letter.
In the letter and attached schedules provide information that answers the following questions. Please include a description of the relevant assumptions and any explanatory comments that make the results easier to understand.
Sensitivity analysis: Redo the analysis assuming that they only earn 9% on their investments, instead of 11.0%.
Determine the needed amounts so they have the money they need in retirement.