The Rolands have come to see you on January 2. Neil, age 51, is an anesthesiologist and
Question:
The Rolands have come to see you on January 2. Neil, age 51, is an anesthesiologist and his wife, Harriet, age 51, is a lawyer. Neil has a practice at the hospital and shares an office with a partner in a nearby medical building. Neil and his partner conduct business as Roland and Shad, LLP. Harriet works for a medium size law firm and is the managing partner.
Neil and Harriet have been married for 23 years, and they have three children ages 22, 20 and 10. The Rolands have already set aside sufficient assets for an education fund for their children. The Rolands own their own home which currently has a fair market value of $350,000. They have an unpaid mortgage balance of $100,000. The interest rate on the mortgage is 7.5%. Their monthly payment including principal, interest, taxes, and insurance is $1,400.
Neil has an annual net income of $300,000, and Harriet has an annual salary of $90,000. Their adjusted gross income is $390,000.
The Rolands have said and determined objective of $260,000 in annual income. This amount is pretax and based on today’s purchasing power. Neil currently has $800,000 dollars in his account in a SEP plan established by the partnership. The SEP plan is for Neil, his partner, and therefore other employees. Neil also has an IRA account balance of $60,000. Harriet has $180,000 in a 401(k) plan which allows her to make an elective deferrals of up to 10% of her salary. The plan will match 50% of her deferrals up to 6% of income. Harriet is the beneficiary of Neil’s retirement accounts, and Neil is the beneficiary of Harriet’s retirement accounts.
Neal and Harriet are planning to retire when Neil is 66 (one year before full retirement age). They expect that inflation will average 3.5% both before and after they retire. They’re both in excellent health and expect to live to age 90. They have invested their retirement funds and assets that have earned returns averaging 14% over the past four years. Expect their assets will earn approximately 11% annually until they both retire. After retirement, they expect that their investment returns will drop to approximately 8% annually. These returns are estimated on a pretax basis. The Rowlands have received from the social security administration statements of their earnings and estimate of future benefits showing that each of them will receive Social Security benefits of approximately $15,000 annually when they retire.
Harriet’s mother, Elain, will be 71 years of age on August 1 first of this year. She is a widow and receives monthly Social Security payments of $1,000 as well as a pension of $1,750 monthly. On December 31 of the previous year, the account was valued at $170,000. She has Harriet as the beneficiary of the IRA. She works part-time for Neil in his office and earns $15,000 per year. Neil does not make a Keogh contribution for her.
1) The Rolands want to know the amount they will need at retirement to achieve their retirement planning objective. They want to know the total amount they will need in case Social Security will not be available at the time they retire under the annuity method?
$7,938,639
$6,689,843
$5,944,701
$6,198,404
2) The Rolands want to know the amount they will need at retirement to achieve their retirement planning objective. They want to know the total amount they will need if Social Security will be available at the time they retire under the annuity method? Do not include any information about Elaine in your calculations.
$5,917,938
$5,258,774
$6,748,566
$4,005,024
3) The Rolands want to know what they need to save during their remaining working years. In order to arrive at this figure, you will first need to know the likely value at retirement of assets they currently own. If we consider only the current retirement accounts (without additional contributions), what will be the approximate pre-tax value of the Roland's current retirement assets at the time they retire?
$4,444,233
$1,040,000
$3,442,939
$4,975,973
4) Assume the Rolands would like to leave a legacy so that they leave the same amount of retirement money for their children as they saved for retirement. How much do the Rolands need to save per month to achieve a capital preservation of their retirement funds? Assume they receive social security and make no contributions to their 401(k) and do not include any information about Elaine in your calculations.
$3,100
$2,569
$3,247
$2,941
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso