Chapter $5$ Discussion Case $1$ Additional Questions

Complete these questions using the indicated Personal Finance Calculators.

Use the following assumptions when answering the questions below.

Inflation rate: $3\mathrm{.}5$ percent

Investment rate of return: $4$ percent

Wen's federal tax bracket: $27$ percent

Wen's state tax bracket: $4\mathrm{.}5$ percent

Assuming Wen makes no further contributions to his emergency fund, what is the nominal future value of this fund in $10$ years? What is the tax and inflation adjusted future value in $10$ years? Use the Savings, Taxes, and Inflation Calculator to determine your answer.

If Wen receives annual pay increases of $4$ percent for the next $10$ years, how much money will Wen need in his emergency fund to cover six months' worth of gross income?

Wen wants to have $6$ months gross income available at all times for emergencies. Using the information in questions $1$ and $2,$ does Wen have adequate funds to continue achieving this goal $10$ years form now?

Does Wen need $6$ months' worth of gross income in an emergency fund? Why or why not? What is a better income gauge of his savings requirement?

Interpret your findings from questions $1$ through $4$ and suggest any alternative strategies for Wen should he have a savings shortfall.