Problem:
Bill, age 45 wants to retire at age 60. He currently earns $60,000 per year. His goal is to replace 80% of his preretirement income. He wants the retirement income to be adjusted for inflation. Bill has an investment portfolio valued at $150,000 which is currently earning 10% average annual returns. Bill expects inflation to average 3% and based on his famly health, predicts he will live to age 90. Bill is currently saving7%of his gross income at each year-end and expects to continue this level of savings. Bill wants to ignore any Social Security benefits for purpsoes of retirment planings.
Required:
Question 1: What will Bill's annual needs be at age 60?
Question 2: Will the need be for an ordinary annuity or anannuity due?
Question 3: How much total capital will Bill need at age 60?
Question 4: How much capital will Bill have at 60?
Question 5: Will Bill have enough income at retirement?
Note: Provide support for your rationale.