Assume it is December 30th and Brian Schmidt has asked for your assistance to help him create a retirement plan.

Brian Schmidt (40 years old) is a security analyst with Rackspace.  He currently earns $100,000 per year in gross salary. Brian has never married and is expected to remain single.  Brian has managed to save $100,000 towards his retirement goal.  He is currently saving $5,000 per year in his 401(k) plan.  His employer’s plan calls for a 50% match for contributions up to an employee elective deferral of 6%.

Brian is currently in good health, but wants to plan to retire at age 62 with an 80% wage replacement ratio. He expects to receive $30,000 in Social Security benefits in today’s dollars upon reaching his normal retirement age of 67. He wants to plan for a life expectancy to age 95.  He has no charitable bequests upon his death and is fine with spending all of his money during his retirement years.

Brian is currently spending all his income, but figures he could save an additional $1,000 at most per year to help him reach his goal if absolutely necessary.  He has no other assets outside his 401(k) plan.  His work provides him with a $100,000 term life insurance policy. His parents are both living and in good health.  They do not expect him to help them during their retirement years, and he does not expect to inherit anything from them when they die.

Economic and Financial information:

•             General inflation is expected to average 3% annually for the foreseeable future.

•             Brian’s expected return on investment is 8.5% for his portfolio.

•             Brian’s marginal income tax rate is 25%.

•             Expected wage increases to average 3.5% annually.

 

In your teams, develop a written retirement plan recommendation for Brian Schmidt.

Requirements to be included in the plan include:

1.            Is Brian on-track to reach his retirement goal?  If not, what would be needed for him to get on-track?

2.            What specific recommendations would you have for Brian?  Provide specific recommendations for Brian to implement today, including what type of retirement account to contribute to and by how much.

3.            When should Brian start taking Social Security benefits? How much will he receive in today’s dollars if he takes benefits as you recommend?  Why did you make this recommendation?

4.            Provide at least two other retirement alternatives for Brian to consider including financial requirements for each alternative.

5.            What other recommendations do you have for Brian to consider?

Answer rating: 100% (QA)

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