Retirement Planning Project Instructions: 1. You will submit two files for this assignment. One with the answers to the short answer questions typing your calculator commands to show work. If you answer a question incorrectly and don't type your calculator commands you will not receive partial credit. The second document should be the written plan with your recommendations. 2. You should use the same format as the example we covered in class with the following fact pattern. Steve & Sally Smith Case Bob Booth, CFPO Financial Planning Office PERSONAL BACKGROUND AND INFORMATION COLLECTED THE FAMILY Steve Smith, age 43, is a professor at Sample College. His wife, Sally, age 43, works in the IT Department at Sample College. Steve and Sally have been married for fifteen years and have three children from their marriage, Sara (age 13), Steve Jr. (age 10), and Sam (age 5). For retirement, they want to plan for 90% wage replacement at age 62, without any consideration of Social Security. If they cannot achieve that they will consider a compromise between delaying retirement and lowering the wage replacement ratio as long as the wage replacement ratio is no less than 75% and the delayed retirement is no later than age 70. They expect to live to age 90. Steve Smith's Email to Bob Booth July 15, 2020 Dear Bob: Thanks for the list of questions. I am going to put my answers in red after each question to make it easier for both of us. What is Steve's current income? What is Sally's current income? What is your current budget (in case something has changed)? I have attached our current budget. Fortunately, we have been able to implement many of your recommendations and decided to liquidate the Cornelius Inc. stock and the balance mutual fund to pay off our credit cards and vehicles. We have made other adjustments to our expenses and are in much better position than we were. Budget for Steve and Sally Smith Beginning Income Budget Steve's Salary Sally's Salary Interest and Dividends Total Annual Gross Income Expenses Fixed Expenses Payroll Taxes Federal Income Tax State Income Taxes (5% of AGI) 403 (b) - Steve 403 (b) - Sally Mortgage Homeowner Insurance Real Estate Taxes PMI Insurance Electricity Gas Home Maintenance Trash Pickup $ Water/Sewer Cable/Internet Cell Phone Child Care Medical insurance Groceries Auto Insurance Total Fixed Expenses m Variable Expenses Charitable Giving $69 '1 01 O Medical Costs Dining Out/Entertainment Clothing Other Expenses Gas/Auto Maintenance Total Variable Expenses Total Expenses $ 138,602 Net Available Cash Flow 3 6,399 Monthly m . What is Steve's anticipated average annual salary increase? 0 3% o What is Sally's anticipated average annual salary increase? 0 3% . What percentage of your current income do you anticipate needing in retirement? 0 90% Thanks! Steve Smith Steve.smith@gmail.com What is the current balance in Steve's retirement account? 0 $50,000 What is the current balance in Sally's retirement account? 0 $60,000 What is Steve's retirement savings rate? 0 6% What is Sally's retirement savings rate? 0 6% Does Steve anticipate changing his savings rate? 0 No Does Sally anticipate changing her savings rate? 0 NO What is Steve's anticipated retirement age? 0 Age 62 What is Sally's anticipated retirement age? 0 Age 62 How long does Steve expect to live in retirement? 0 90 years old How long does Sally expect to live in retirement? 0 90 years old Do you want to include Social Security in your retirement plan? 0 NO What rate of ination would you like me to use? I would suggest three percent. 0 3% is fine What earnings rate would you like me to use? I would suggest eight percent. 0 8% is fine In retirement, do you want to preserve the balance of your retirement savings, or is it okay to withdraw principal to meet your spending needs? 0 Could we look at both options? Do you anticipate any major purchases during retirement, other than vehicles? 0 NO What do you plan on doing in retirement? VWI it require additional spending? 0 We plan on buying an RV before we retire and travel. I anticipate spending $10,000 annually taking road trips. Do you anticipate being out of debt when you retire? 0 Yes, we plan on being out of debt. Do you plan on working part-time in retirement? 0 No, but I am willing to work part-time if necessary. Question One: Calculate the annual savings amount for the Smith's using the Annuity Method. 20 points Question Two: Using the information from question one, calculate the annual savings amount for the Smith's using the Capital Preservation Model. 10 points Question Three: Using the information from question one, calculate the annual savings amount for the Smith's using the Purchasing Power Preservation Model. 10 points Question Four: Review the Smith's budget and make adjustments to their budget in retirement. Using your recommended wage replacement ratio, calculate the annual savings amount for the Smith's using the Annuity Method. 15 points Budget for Steve and Sally Smith in retirement Fixed Expenses Payroll Taxes Federal Income Tax State Income Tax (5% of AGI) 403 b - Steve 403 b - Sail Mort-nae Homeowner Insurance Real Estate Taxes PMI Insurance Electricity Gas Home Maintenance Trash Pickup Water/Sewer Cable/Internet Cell Phone Child Care Medical Insurance Groceries Auto Insurance Total Fixed Expenses Variable Expenses Charitable Givin. Medical Costs Dining out/Entertainment Clothin- Other Ex-enses Gas/Auto Maintenance Vacations I Total Variable Expenses Total Expenses Question Five: Using the expenses from question 4, calculate the savings required for the Smiths to retire at age 62, 67, and 70 using the annuity method. Don't include the impact of Social Security. 15 points Question Six. Now incorporate social security. At age 62 theirjoint benefit will be $24,000, at age 67, $36,000, and at age 70, $45,000 10 points Create a written plan that compares and contrasts the three retirement options for the Smiths incorporating Social Security (age 62, age 67, age 70), and recommend which option you believe works the best for the Smiths. Fully explain your reasoning. At a minimum, your plan to the Smiths should include at least the following: Introduction Illustrate the difference in savings required with the incorporation of Social Security Retire at age 62 Retire at age 67 Retire at age 70 The recommendation with a thorough explanation Summarize key points and next steps NOODPWNT' 20 points