This paper circulates around the core theme of For the 4th part of this retirement plan, you will utilize the FV of the Life Styles you calculated in the previous step to understand how much money an individual will need to have saved to get through the retirement stage. together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Part 1
For the first part of this plan, we need to calculate the rate of return of our
retirement savings will earn until we reach our retirement age (67 years
old). To do this we are, you will need to estimate the 5-year average rate
of return of the stock market (you should use the S&P 500 stock index,
which can be researched at finance Web sites) using the table below:
|
S&P 500 Index Value 5
yrs. ago
(PV)
|
S&P 500 Index Value Now
(FV)
|
Number of Periods
(NPER)
|
5-Year Return on S&P
500 Index
(RATE)
|
| |
|
5
|
|
After calculating the 5-Year Return on the S&P 500 Index (RATE), determine
how long it will take for an investment to double using the Rule of 72. Now
that you have an understanding of the return in the market, you need to
think about planning for future retirement.
Part 2
For the 2nd part of this plan, we need an understanding of how much money an
individual would need in the future for retirement. For this step, assume
an individual needed the following amounts to retire, how much would he or
she have to invest today?
The future value of the accounts is given in the table below.
The rate of return we are assuming will be the 5-Year Return on Top 500 Stocks
you calculated in the previous step.
For the years to retirement, assume retirement age is 67. Calculate the
difference between retirement age and the current age of a 35-year-old
individual.
Now you are ready to calculate the present value of the following amounts (FV
of Account).
- $1,000,000
- $2,000,000
- $4,000,000
|
FV of Account (Given)
|
5-Year Return on Top 500
Stocks (RATE)
|
Years to Retirement (NPER)
|
Find PV of Investment
|
|
$
1,000,000
|
|
|
|
|
$
2,000,000
|
|
|
|
|
$
4,000,000
|
|
|
|
Part 3
For the 3rd part of this retirement plan, you will need to estimate the future
cost of 3 lifestyles assuming an inflation rate of 3% and the number of
years before you turn 67 years old. Below are three different lifestyles to
consider:
- Basic:
Current cost = $50,000
- Comfortable:
Current cost = $100,000
- Luxury:
Current cost = $150,000
You will use the same number of years to retirement (NPER) as you calculated in
the previous step.
In the table below, calculate the future value of the current lifestyles.
|
PV of Life Style
(Given)
|
Average Rate of Inflation
(RATE)
|
Years to Retirement
(NPER)
|
Find FV of Life Style
|
|
$
50,000
|
3.0 %
|
|
|
|
$
100,000
|
3.0 %
|
|
|
|
$
150,000
|
3.0 %
|
|
|
Part 4
For the 4th part of this retirement plan, you will utilize the FV of the Life
Styles you calculated in the previous step to understand how much money an
individual will need to have saved to get through the retirement stage.
To do this, you will need to estimate the life expectancy of the retiree. Based
on current averages, the life expectancy of an individual is 90 years of
age. Now, you can subtract the life expectancy of the retiree from 67 (the
retirement age) to determine the number of years in during the retirement
stage (NPER, given 23 years).
The rate of return that will be used is adjusted for 3% inflation. (hint: the
inflation adjusted amounts will be the payment as you will be calculating
the present value of this annuity using a rate of return of 12%).
In the following table, calculate the total amount that will need to be saved
to get through the retirement stage (Required Value at Retirement) for each
style given.
FV of Life Style (PMT)
Given Expected Rate of
Return (RATE)
Years in Retirement (NPER)
Required Value at
Retirement
(Find PV of Annuity)
12.0%
23
