Eric works for a company with a defined contribution benefit pension plan. He will retire in ten years (at age 65) and expects his salary to be $100,000 in his last year of work. Social security should pay him $1,325 per month at that time. If he needs 80 percent of his income to maintain his standard of living upon retirement, how much annual income will he need from his employer's plan and from his own planning when he retires? (Show all work.)

answer

watching

180

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Nestor RutherfordLv2

21 Jul 2019

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

Larry is 58 and wants to retire by age 65. He expects that hewill live to age 95. He currently has a salary of $140,000 andexpects that he will need about 72% of that amount annually if hewere retired. He can earn 9 percent in his portfolio while he isworking. However, he expects that he will only earn 7 percent inhis portfolio during retirement because he will adjust his assetallocation so that his portfolio is more conservative. He expectsinflation to continue at 3 percent. Larry currently has $800,000invested for his retirement. His Social Security benefit in todayâsdollars is $24,000 per year, assuming a retirement of age 65. Hejust calculated what he needs to save each year and it is more thanhe can afford. How will the following alternative affect hisretirement plans (show your work):

a. Modify his portfolio duringretirement to achieve an 8% rate of return instead of a 7% rate ofreturn.

b. Delay his retirement by 2years.

c. Reduce his expected needs by$10,000 in todayâs dollars.

d. None of the above will help himachieve his goals.

salmonpig565

Parker is 50 and wants to retire in 15 years. His family has ahistory of living well into their 90s. Therefore, he estimates thathe will live to age 95. He currently has a salary of $120,000 andexpects that he will need about 65% of that amount annually if hewere retired. He can earn 9 percent in his portfolio while he isworking. However, he expects that he will only earn 7 percent inhis portfolio during retirement. He expects inflation to continueat 3 percent. Parker currently has $350,000 invested for hisretirement. His Social Security benefit in todayâs dollars is$30,000 per year at normal age retirement of age 67. His SocialSecurity benefit will be reduced by 6 2/3 percent for each year hebegins collecting before full age retirement. How much does he needto save each year to meet his retirement goals?

tealmouse218

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent.

The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Ben thinks that he will receive an offer of $78,000 per year upon graduation, with a $8,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben has also found that both school offer graduate housing. His room and board expense will decrease by $4000 per year at either school he attends. The appropriate discount rate is 6.5 percent.

QUESTIONS

1.How does Ben's age affect his decision to get an MBA?

2.What other, perhaps nonquantifiable, factors affect Ben's decision to get an MBA?

3.Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?

4.Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5.What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?

6.Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision?

greenscorpion133

Weekly leaderboard

Home

Homework Help 3,900,000

Finance 370,000

Unlock all answers

Related questions

Related Documents

FIN 502 Study Guide - Final Guide: Defined Benefit Pension Plan, Tax Rate, Current Yield

FIN 300 Study Guide - Midterm Guide: Candy Barr, Cash Flow, C Shell

FIN 3715 : Finance Review Exam 2

Weekly leaderboard