MAT 105 Module 6 Activity: Retirement Planning Your Name: OBJECTIVE: In this activity, we will assess...

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MAT 105 Module 6 Activity: Retirement Planning Your Name: OBJECTIVE: In this activity, we will assess your understanding of Savings Annuities, Sinking Funds, Payout Annuities and the basics of retirement planning while using your TVM solver. INSTRUCTIONS: Carefully read and follow all directions. Show all steps and calculations in the middle white boxes provided, including TVM Values!!! Write final answers ONLY in the yellow boxes with correct labels if needed ($, %, etc.) Round all FINAL answers to two (2) decimal places, but leave TVM values unrounded in your calculator. 1) GETTING STARTED: You have just graduated and gotten a job in your new career as of January of 2022. Let's get some basic information so we can start our calculations. Here are some resources you might helpful to answer part (b) below: BCTC Academic Programs, Bureau of Labor Statistics: Occupational Outlook Handbook QUESTION #1 a) What is your goal job title? b) What is the MEDIAN annual salary for your job? Copy/paste the website address where you found your salary information. Assume you start on January 2022 and retire at the age of 65, how many years will you be working at your job? d) Assume you retire at 65 and live to be 90, how many years will you live on retirement income? 2) INITIAL ACCUMULATION SHOW WORK 1a) Important Note: For our purposes, we will assume no inflation and no change in salary. This is unrealistic of course, but it will make our calculations easier! ANSWER 1b) Average annual salary $ 1c) Working years 1d) Retirement years Your employer offers a standard 401K matching program of 50 cents on the dollar up to 6% of your annual salary. In order to achieve the maximum benefit, you plan on contributing 6% of your annual salary each month into your retirement fund. We will use the average return on a moderate 401K, which is 5% compounded monthly. (Reference) Calculate how much will be in the account upon retirement. QUESTION #2 a) What type of problem is this? b) Calculate N for working years. Calculate monthly deposits. Hint: Calculate 6% of monthly salary then add 50% for employer added contributions. SHOW WORK Click on the dropdown box to select a problem type. ANSWER 2a) Choose a Type. 2b) Nworking = 2c) Monthly Deposits d) Calculate the amount in the account upon retirement. n = 196= PV= PMT= FV = 2d) Value at Retirement is $ 3) INITIAL LIQUIDATION Now let's say you retire as planned at age 65. We are going to assume that you will live to be 90 years old and that the account terms remain the same, 5% compounded monthly. Furthermore, this represents your retirement income, not any inheritance for others, so plan on using all the money in the account for yourself. After all, you earned it! What monthly withdrawals from your 401K can you expect? QUESTION #3 a) What type of problem is this? b) Calculate N for retirement years. c) Calculate the monthly withdrawals from the account during retirement. SHOW WORK Click on the dropdown box to select a problem type. N = 196 = PV= PMT FV = ANSWER 3a) Choose a Type. 3b) Nretirement = 3c) Monthly Withdrawals would be: 4) INITIAL PLAN ANALYSIS QUESTION #4 a) What is the total amount deposited into the account? Hint: Refer to #2. b) of this total amount, how much was contributed by your employer? Hint: Refer to 2c) c) How much interest was earned in the account prior to retirement? d) What is the total withdrawn from the account? Hint: Refer to #3 e) How much interest was earned on the account during your retirement? f) What is the TOTAL interest earned in the account over your lifetime? Hint: Use 4c) and 4e) 5) STARTING LATE SHOW WORK ANSWER 4a) Total Deposits is $ 4b) 4c) 4d) Total withdrawn is $ 4e) 4f) Total Interest is $ Let's say you did not start contributing into your 401K account until after you had worked for 10 years. All other terms are the same - your employer contributes 50% up to 6% of your annual salary, you still retire at age 65, and the account still earns 5% compounded monthly. What would your monthly deposits need to be to achieve the same future value as the INITIAL ACCUMULATION plan? QUESTION #5 a) What type of problem is this? b) Calculate N for reduced working years. c) Use the FV from 2d) to calculate the monthly deposits needed to achieve the same goal. SHOW WORK Click on the dropdown box to select a problem type. N = 196= PV= ANSWER 5a) Choose a Type. 5b) Nadj working 5c) New deposits would be $ = PMT= FV = d) How much additional is needed to deposit each month when compared to the INITIAL plan? Note: The employer will not contribute any more! 6) MID-LIFE CRISIS Let's say you had a "mid-life" crisis where you had to buy a new car for $30,000. So, 15 years into your working career, you withdraw $30,000 from your retirement account. You do not change your contributions or anything else. How much will that new car cost you in terms of lost retirement income? Account terms are the same. QUESTION #6 a) Using monthly deposits from 2c) calculate the value of the account after 15 years. SHOW WORK N = 196= PV= PMT= 5d) Additional amount needed to contribute monthly is Important Note: Although not being considered in our problem, when you withdraw funds from a retirement account before the age of 59% you pay a 10% penalty in taxes. ANSWER 6a) Future Value after 15 years is FV = b) After subtracting $30,000, how much remains in the account? c) Calculated your new future value at retirement based on remaining working years and adjusted balance from part (b). d) Using the Adjusted future value from (c), what will now be your monthly withdrawals from the account during retirement? What will be your total withdrawals during retirement? Hint: Refer to 6d) f) How much did the car cost in terms of lost retirement income? Hint: Compare total adjusted withdrawals 6e) and original withdrawals 4d) N = 196 = PV= PMT= FV = N = 196 = PV= PMT= FV = 6b) 6c) Adjusted Future Value would be: $ 6d) Adjusted Monthly Withdrawals would be: 6e) Adjusted total withdrawals $ 6f) Actual cost of car in terms of lost retirement income is 7) IS IT ENOUGH? Assume you have done your retirement expense budget and have estimated that you will need monthly income of at least $5000 during retirement. If our account was the same, earning 5% compounded monthly. How much would you need in the account upon retirement? QUESTION #7 a) What type of problem is this? b) Calculate the amount needed in the account upon retirement. Hint: Use retirement years. SHOW WORK Click on the dropdown box to select a problem type. n = 196 = PV= ANSWER 7a) Choose a Type. 7b) Amount needed at beginning of retirement is $ c) Was your initial plan sufficient? By how much was it short or over? Hint: Compare 2d) with 7b) 8) RETIRING A MILLIONAIRE PMT= FV= 7c) Starting now, before you even start your new job, you can always start your own IRA, either a traditional or Roth IRA. If you take a very aggressive investment approach (high risk) you may be able to achieve a significantly higher return. Let's say you start this year and want to have $1,000,000 in your retirement account by the age of 65. Calculate the monthly deposits you would need earning 10% compounded monthly. QUESTION #8 a) What type of problem is this? b) Calculate N based on starting July 2021 & ending December of the year you turn 65. c) Calculate the monthly deposits needed to reach an account value of $1 million by the age of 65. SHOW WORK Click on the dropdown box to select a problem type. n = 196= PV= PMT= FV = ANSWER 8a) Choose a Type. 8b) Nnow-retire = 8c) Monthly deposits would be $ d) Calculate the total interest earned during that time. 8d) Total interest earned during accumulation phase is 9) START SAVING FOR RETIREMENT NOW! I highly recommend everyone who qualifies (which is most of us!) open a Roth IRA as soon as possible, even if you can only deposit $50 a month. Read about starting a Roth IRA: NerdWallet Roth IRA's for Beginners For a full discussion about retirement planning, there is a collection of good information found here: TheBalance: Retirement 101 Although we did not discuss it in our work, Social Security, assuming it is still viable by the time you retire, is another minor source of retirement income. See here for a calculator to estimate your social security benefits: AARP Social Security Calculator. Please note - Social Security was NEVER designed to be the sole income for retirement, however, it can supplement whatever retirement savings you do have. MAT 105 Module 6 Activity: Retirement Planning Your Name: OBJECTIVE: In this activity, we will assess your understanding of Savings Annuities, Sinking Funds, Payout Annuities and the basics of retirement planning while using your TVM solver. INSTRUCTIONS: Carefully read and follow all directions. Show all steps and calculations in the middle white boxes provided, including TVM Values!!! Write final answers ONLY in the yellow boxes with correct labels if needed ($, %, etc.) Round all FINAL answers to two (2) decimal places, but leave TVM values unrounded in your calculator. 1) GETTING STARTED: You have just graduated and gotten a job in your new career as of January of 2022. Let's get some basic information so we can start our calculations. Here are some resources you might helpful to answer part (b) below: BCTC Academic Programs, Bureau of Labor Statistics: Occupational Outlook Handbook QUESTION #1 a) What is your goal job title? b) What is the MEDIAN annual salary for your job? Copy/paste the website address where you found your salary information. Assume you start on January 2022 and retire at the age of 65, how many years will you be working at your job? d) Assume you retire at 65 and live to be 90, how many years will you live on retirement income? 2) INITIAL ACCUMULATION SHOW WORK 1a) Important Note: For our purposes, we will assume no inflation and no change in salary. This is unrealistic of course, but it will make our calculations easier! ANSWER 1b) Average annual salary $ 1c) Working years 1d) Retirement years Your employer offers a standard 401K matching program of 50 cents on the dollar up to 6% of your annual salary. In order to achieve the maximum benefit, you plan on contributing 6% of your annual salary each month into your retirement fund. We will use the average return on a moderate 401K, which is 5% compounded monthly. (Reference) Calculate how much will be in the account upon retirement. QUESTION #2 a) What type of problem is this? b) Calculate N for working years. Calculate monthly deposits. Hint: Calculate 6% of monthly salary then add 50% for employer added contributions. SHOW WORK Click on the dropdown box to select a problem type. ANSWER 2a) Choose a Type. 2b) Nworking = 2c) Monthly Deposits d) Calculate the amount in the account upon retirement. n = 196= PV= PMT= FV = 2d) Value at Retirement is $ 3) INITIAL LIQUIDATION Now let's say you retire as planned at age 65. We are going to assume that you will live to be 90 years old and that the account terms remain the same, 5% compounded monthly. Furthermore, this represents your retirement income, not any inheritance for others, so plan on using all the money in the account for yourself. After all, you earned it! What monthly withdrawals from your 401K can you expect? QUESTION #3 a) What type of problem is this? b) Calculate N for retirement years. c) Calculate the monthly withdrawals from the account during retirement. SHOW WORK Click on the dropdown box to select a problem type. N = 196 = PV= PMT FV = ANSWER 3a) Choose a Type. 3b) Nretirement = 3c) Monthly Withdrawals would be: 4) INITIAL PLAN ANALYSIS QUESTION #4 a) What is the total amount deposited into the account? Hint: Refer to #2. b) of this total amount, how much was contributed by your employer? Hint: Refer to 2c) c) How much interest was earned in the account prior to retirement? d) What is the total withdrawn from the account? Hint: Refer to #3 e) How much interest was earned on the account during your retirement? f) What is the TOTAL interest earned in the account over your lifetime? Hint: Use 4c) and 4e) 5) STARTING LATE SHOW WORK ANSWER 4a) Total Deposits is $ 4b) 4c) 4d) Total withdrawn is $ 4e) 4f) Total Interest is $ Let's say you did not start contributing into your 401K account until after you had worked for 10 years. All other terms are the same - your employer contributes 50% up to 6% of your annual salary, you still retire at age 65, and the account still earns 5% compounded monthly. What would your monthly deposits need to be to achieve the same future value as the INITIAL ACCUMULATION plan? QUESTION #5 a) What type of problem is this? b) Calculate N for reduced working years. c) Use the FV from 2d) to calculate the monthly deposits needed to achieve the same goal. SHOW WORK Click on the dropdown box to select a problem type. N = 196= PV= ANSWER 5a) Choose a Type. 5b) Nadj working 5c) New deposits would be $ = PMT= FV = d) How much additional is needed to deposit each month when compared to the INITIAL plan? Note: The employer will not contribute any more! 6) MID-LIFE CRISIS Let's say you had a "mid-life" crisis where you had to buy a new car for $30,000. So, 15 years into your working career, you withdraw $30,000 from your retirement account. You do not change your contributions or anything else. How much will that new car cost you in terms of lost retirement income? Account terms are the same. QUESTION #6 a) Using monthly deposits from 2c) calculate the value of the account after 15 years. SHOW WORK N = 196= PV= PMT= 5d) Additional amount needed to contribute monthly is Important Note: Although not being considered in our problem, when you withdraw funds from a retirement account before the age of 59% you pay a 10% penalty in taxes. ANSWER 6a) Future Value after 15 years is FV = b) After subtracting $30,000, how much remains in the account? c) Calculated your new future value at retirement based on remaining working years and adjusted balance from part (b). d) Using the Adjusted future value from (c), what will now be your monthly withdrawals from the account during retirement? What will be your total withdrawals during retirement? Hint: Refer to 6d) f) How much did the car cost in terms of lost retirement income? Hint: Compare total adjusted withdrawals 6e) and original withdrawals 4d) N = 196 = PV= PMT= FV = N = 196 = PV= PMT= FV = 6b) 6c) Adjusted Future Value would be: $ 6d) Adjusted Monthly Withdrawals would be: 6e) Adjusted total withdrawals $ 6f) Actual cost of car in terms of lost retirement income is 7) IS IT ENOUGH? Assume you have done your retirement expense budget and have estimated that you will need monthly income of at least $5000 during retirement. If our account was the same, earning 5% compounded monthly. How much would you need in the account upon retirement? QUESTION #7 a) What type of problem is this? b) Calculate the amount needed in the account upon retirement. Hint: Use retirement years. SHOW WORK Click on the dropdown box to select a problem type. n = 196 = PV= ANSWER 7a) Choose a Type. 7b) Amount needed at beginning of retirement is $ c) Was your initial plan sufficient? By how much was it short or over? Hint: Compare 2d) with 7b) 8) RETIRING A MILLIONAIRE PMT= FV= 7c) Starting now, before you even start your new job, you can always start your own IRA, either a traditional or Roth IRA. If you take a very aggressive investment approach (high risk) you may be able to achieve a significantly higher return. Let's say you start this year and want to have $1,000,000 in your retirement account by the age of 65. Calculate the monthly deposits you would need earning 10% compounded monthly. QUESTION #8 a) What type of problem is this? b) Calculate N based on starting July 2021 & ending December of the year you turn 65. c) Calculate the monthly deposits needed to reach an account value of $1 million by the age of 65. SHOW WORK Click on the dropdown box to select a problem type. n = 196= PV= PMT= FV = ANSWER 8a) Choose a Type. 8b) Nnow-retire = 8c) Monthly deposits would be $ d) Calculate the total interest earned during that time. 8d) Total interest earned during accumulation phase is 9) START SAVING FOR RETIREMENT NOW! I highly recommend everyone who qualifies (which is most of us!) open a Roth IRA as soon as possible, even if you can only deposit $50 a month. Read about starting a Roth IRA: NerdWallet Roth IRA's for Beginners For a full discussion about retirement planning, there is a collection of good information found here: TheBalance: Retirement 101 Although we did not discuss it in our work, Social Security, assuming it is still viable by the time you retire, is another minor source of retirement income. See here for a calculator to estimate your social security benefits: AARP Social Security Calculator. Please note - Social Security was NEVER designed to be the sole income for retirement, however, it can supplement whatever retirement savings you do have.