Question

Anne-Marie and Yancy calculate their current living expenditures to be ?$64,000 a year. During retirement they plan to take one cruise a year that will cost ?$5,000 in? today's dollars.? Anne-Marie estimated that their average tax rate in retirement would be 11 percent. Yancy estimated their Social Security income to be about ?$18,236 and their retirement benefits are approximately ?$28,044. Use this information to answer the following? questions: a. How much? income, in? today's dollars, will? Anne-Marie and Yancy need in retirement assuming 70 percent replacement and an additional ?$5,000 for the? cruise? b. Calculate their projected annual income shortfall in? today's dollars. c.? Determine, in? dollars, the future value of the shortfall 29 years from? now, assuming an inflation rate of 3 percent. d. Assuming a nominal rate of return of 8 percent and 22 years in?

Answer 1

a. $49,800.00

b. $9,675.06

c. $8,545.65

Step-by-step explanation:

a. Net need = (current living expenses x replacement ratio) + additional annual needs

Net need = ($64,000 x 0.70) + $5,000 = $ 44,800 + $5,000

Net need = $49,800.00

Gross need = net need / (1 – average tax rate)= $49,800.00 / (1 – 0.11)= $49,800.00/ 0.89= $55,955.06

b.

Present value shortfall = projected income need – projected income available

Present value short fall =$55,955.06 – ( $18,236 + $28,044 )

= $9,675.06

c

Calculator solutionPV-$1,977.27PMT$0I/YR5%N30CPT FV$8,545.65