Mr. and Mrs. Lee are both 40 years old and they approach you, a wealth manager, for
Question:
Mr. and Mrs. Lee are both 40 years old and they approach you, a wealth manager,
for advice on their retirement planning. These are the information about the couple :
Age: Both are 40; No children
Jobs: Civil Engineer for Mr. Lee; Administration Manager for Mrs. Lee
Target retirement age : 60 years old (for both)
Life expectancy : 90 years old (for both)
Annual income : $540,000 (after tax) for Mr. Lee and $450,000 (after tax) for Mrs. Lee
Monthly expenses : $32,000 for Mr. Lee and $23,000 for Mrs. Lee
Investment: Total investment in mutual funds (mix of bonds and stocks) =$1,000,000 (average annual return : 7%)
Cash on hand: Total $500,000
Apartment: No apartment since they may go back to Australia to join their family after retirement.
Monthly expenses : Expected to be 70% of their current level after retirement
You agree with the couple that the investment return in the future will be set at a moderate rate of 7% per year.
They will also leave their current mutual fund investment of $1,000,000 unchanged and allow it to grow in value steadily until their retirement.
Assume end-of-period cash inflows and outflows, answer the following
questions and shows all steps clearly (round up your final answers to an integer).
a. Estimate the amount of retirement fund they should have at the retirement age of 60 and explain the underlying concepts and assumptions in your calculation. (40%)
b. How much additional funds they have to save every year since now until they retire so as to prepare for their retirement ? (30%)
c. Explain all other factors they should consider for this retirement plan. (30%)