You are given the following information concerning a 52-year-old male:

Car and consumer loans ..............$ 14,000

Cash and savings accounts ..............3,000

Cash value of life insurance ..............10,000

Education loans ..............26,000

Home (estimated value) ..............175,000

Home mortgage ..............68,000

Home equity loan ..............14,000

Pension plan ..............95,000

Retirement account (IRA) ..............15,000

Securities (corporate stock) ..............41,000

a) From this information, construct the individual’s current balance sheet.

b) Construct pro forma balance sheets for this individual at ages 62 and 70. To make these projections, assume (1) that the rate of inflation will be 5 percent annually and the value of the house will appreciate at that rate, (2) that no additional contributions will be made to the IRA and the amount of cash and savings will remain $3,000, (3) the IRA and the cash value of the life insurance will grow annually at 6 percent, (4) the annual return on the pension plan and the stock will average 10 percent, (5) $5,000 additional contributions to the pension plan and $3,000 additional stock investments will be made each year, and (6) all liabilities will be retired by age 60. After age 62, contributions to the pension plan will cease.

c) What is the value of the individual’s financial assets at ages 62 and 70? Suppose at the age of 70, this individual consolidates all the financial assets into a very safe investment that pays a modest 6 percent annually. How much can the individual spend each year to age 90?