Personal Financial Planning 13th Edition by Lawrence Gitman,Michael Joehnk,Randy Billingsley

Exercise 5

Use Worksheet 14.1 to assist Stacy Eustus with her retirement planning needs. She plans to retire in 15 years, and her current household expenditures run about $50,000 per year. Stacy estimates that she'll spend 80 percent of that amount in retirement. Her Social Security benefit is estimated at $15,000 per year, and she'll receive $12,000 per year from her employer's pension plan (both in today's dollars). Additional assumptions include an inflation rate of 4 percent and a rate of return on retirement assets of 8 percent a year before retirement and 5 percent afterward. Use Worksheet 14.1 to calculate the required size of Stacy's retirement nest egg and the amount that she must save annually over the next 15 years to reach that goal.