To complete the second project you will be developing a financial plan to meet your retirement goals. This is a very practical exercise that you can use in the future and will also demonstrate to me your ability to apply Time Value of Money techniques. The ultimate goal is for you to 1) calculate your Retirement Funding Goal - how much money you will need at your retirement date to fund your retirement life style and 2) to calculate your Retirement Investment Plans - how much you will have to invest annually during your working career to meet your retirement goals. To minimize the complexities of this exercise, you will assume that your investments will be made after tax into a Roth IRA, which makes the retirement withdrawals tax free. This may not be completely practical as many of you will go to work for a company that matches contributions into a 401k or traditional IRA plan. In that case your investments are made pre-tax, but the withdrawals during retirement are taxable and you would need to take that into consideration if you were planning in that manner. Additionally, you will assume that your retirement will be funded by you alone and there is no participation by your employer or by the Government (Social Security) as there are no guarantees in life, so you should plan accordingly. However, it is highly likely that you would receive some help from one or both of those sources. Therefore, in the future you would modify your model to adjust for any projected assistance. You will develop an Excel Spreadsheet that clearly labels all of your inputs, calculations, and outputs requested as follows: 1. Retirement Funding Goal: Provide me your time horizons used in your planning. a. Age when you will start your full time position (age at graduation) (input) b. Number of years in your Life expectancy (input) (from https://www.ssa.gov/oact/STATS/table4c6.html c. Planned age at retirement (input) d. Number of years of Retirement (calculation) e. Number of years in work life (calculation) f. Dollars per year necessary in retirement (in 2019 dollars) (input) Take some time considering the type of lifestyle you would like (do you want to travel etc.) Calculate your Retirement Funding Goal - Provide me the amount needed to fund all years of Retirement at your retirement date and all supporting calculations as follows (i.e. your nest egg necessary at the start of your retirement): g. Convert your dollars per year necessary in retirement (part f. above) in to a future value to reflect the start of your retirement assuming a 2.5% rate of inflation. (for example: If you budget $50,000 per year in 2019 and you plan to retire in 2059 (i.e. in 40 years) what is the annual amount needed to equal $50,000 per year in 2019 dollars if inflation is 2.5% per year). This is a future value problem with a rate of 2.5% and a payment = $0. h. Estimate the lump sum needed at the start of your retirement to support your required annual payment calculated in part g. based on the number of years your budgeted for retirement (part d.) Calculate this lump sum at the following three assumed RATEs; 5%, 8%, 12% 2. Retirement investing plans: Provide me three Retirement Investment Plan scenarios during your Working Career that would be needed to fund your Retirement and meet your Retirement Funding Goal. Each scenario will have three different annual payment amounts based on whether you receive a 5%, an 8%, or a 12% rate of return. (the calculations will be done on a separate worksheet in your Excel file) a. Scenario 1: Assume you start investments annually at the end of each year starting in year one of your working career. Calculate the annual payments required if your rate of return is 5%, 8%, or 12%. b. Scenario 2: Assume you start investments annually at the end of each year starting in year five of your working career (the total number of payments into your retirement plan will be the number of years in your work life less five). Calculate the annual payments required if your rate of return is 5%, 8%, or 12%. c. Scenario 2: Assume you start investments annually at the end of each year starting in year ten of your working career (the total number of payments into your retirement plan will be the number of years in your work life less five). Calculate the annual payments required if your rate of return is 5%, 8%, or 12%. 3. Write a one-page summary paper describing your calculations that provides your observations and recommendations as to how best to plan for your retirement (considering rates of return and years of investing). In other words, how do the calculations in this project support the concept of the magic of compounding interest. age 27