1. Jordan is 55 and wants to retire in 12 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 97. He currently has a salary of $100,000 and expects that he will need about 82% of that amount annually if he were retired. He can earn 9 percent in his portfolio and expects inflation to continue at 3 percent. Jordan currently has $325,000 invested for his retirement. His Social Security benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. How much does he need to save each year at year end to meet his retirement goals?
a. $6,245.
b. $7,659.
c. $8,432.
d. $9,252.
2. Larry is 58 and wants to retire by age 65. He expects that he will live to age 95. He currently has a salary of $140,000 and expects that he will need about 72% of that amount annually if he were retired. He can earn 9 percent in his portfolio while he is working. However, he expects that he will only earn 7 percent in his portfolio during retirement because he will adjust his asset allocation so that his portfolio is more conservative. He expects inflation to continue at 3 percent. Larry currently has $800,000 invested for his retirement. His Social Security benefit in today’s dollars is $24,000 per year, assuming a retirement of age 65. He just calculated what he needs to save each year and it is more than he can afford. Which of the following is his best alternative to achieve his retirement goals?
a. Modify his portfolio during retirement to achieve an 8% rate of return instead of a 7% rate of return.
b. Delay his retirement by 2 years.
c. Reduce his expected needs by $10,000 in today’s dollars.
d. None of the above will help him achieve his goals.