1. Do Bill and Molly qualify for any other tax-advantaged saving vehicles? If so, which ones? To what extent?
2. Since Bill does not receive an employer match, should he invest the maximum amount in his Roth IRA annually or just invest more in his 403(b)? Defend your answer.
3. Assuming Bill and Molly can reduce expenses and invest more, how do their retirement savings limits differ before and after age 50?
4. Calculate the future value income need for their first year in retirement, assuming a 3 percent inflation rate and an 80 percent income replacement.
5. Calculate the projected annual income at retirement that will be generated by their portfolio, assuming an 8 percent nominal rate of return, a 20-year retirement period, and no further contributions.
6. Given their projected Social Security and investment income, how much will Bill and Molly need to invest annually to make up their income shortfall? Into what account(s) would you suggest they make the investments?
7. Bill and Molly don't feel like they have very good self-control with saving other than of the limits they initially set for themselves 10 years ago. What recommendations do you have for them in dealing with annual pay increases at work?
8. Given Molly's concerns about their retirement preparation, what changes might they implement based on Principle 10: Just Do It! to secure their travel plans?
Bill (age 42) and Molly (age 39) Hickok, residents of Anchorage, Alaska, recently told you that they have become increasingly worried about their retirement. Bill, a public school teacher, dreams of retiring at 62 so they can travel and visit family. Molly, a self-employed travel consultant, is unsure that their current retirement plan will achieve that goal. She is concerned that the cost of living in Alaska along with their lifestyle have them spending at a level they could not maintain. Although they have a nice income of more than $100,000 per year, they got a late start planning for retirement, which is now just 20 years away. Bill has tried to plan for the future by contributing to his 403(b) plan, but he is only investing 6 percent of his income when he could be investing 10 percent. Use what they told you along with the information below to help them prepare for a prosperous retirement.
Molly's income ………………………………………………. $78,000
Bill's income …………………………………………………. $42,000
Social Security income at retirement ………………………… $2,600/mo
Current annual expenditures …………………………………. $70,000
Bill's Roth IRA ………………………..…………………….. $20,000
Bill's 403(b) plan …………………………………………….. $47,800
Marginal tax bracket ………………………………………… 25 percent