Elena Diaz is 57 years old and has been widowed for 13 years. Never remarried, she has worked full-time since her husband died - in addition to raising her two children, the youngest of whom is now finishing college. After being forced back to work in her 40s, Elena's first job was in a fast-food restaurant. Eventually, she updgraded her skills sufficiently to obtain a supervisory position in the personnel department of a major corporation, where she's now earning $58,000 per year.
Although her financial focus for the past 13 years has, of necessity, been on meeting living expenses and getting her kids through college, she feels that now she can turn her attention to her retirement needs. Actually, Elena hasn't done too badly in that area, either. By carefully investing the proceeds from her husband's life insurance policy, Elena has accumulated the following investment assets:
Money market securities, stocks, and bonds $72,600
IRA and 401 (k) plans $47,400
Other than the mortgage on her condo, the only other debt she has is $7,000 in college loans.
Elena would like to retire in 8 years, and she recently hired a financial planner to help her come up with an effective retirement program. He has estimated that, for her to live comfortably in retirement, she'll need about $37,500 a year (in today's dollars) in retirement income.
1. After taking into account the income Elena will receive from Social Security and her company sponsored pension plan, the financial planner has estimated that her investment assets will need to provide her with about $15,000 a year to meet the balance of her retirement income needs. Assuming a 6% after-tax return on her investments, how big a nest egg will Elena need to earn that kind of income?
2. Suppose she can invest the money market securities, stocks, and bonds (the $72,600) at 5% after taxes and can invest the $47, 400 accumulated in her tax-sheltered IRA and 401(k) at 7%. How much will Elena's investment assets be worth in 8 yrs, when she retires?
3. Elena's employer matches her 401(l) contributions dollar for dollar, up to a maximum of $30,000 a year. If she continues to put $3,000 a year into that program, how much more will she have in 8 years, given a 9% rate of return?
4. What would you advise Elena about her ability to retire in 8 years as she hopes to?© BrainMass Inc. brainmass.com October 25, 2018, 4:51 am ad1c9bdddf
The solution discusses retirement planning for Elena.
Determine gross income and dependency exemptions
Under the rules applicable after 2004, determine how many dependency exemptions would be available in each of the following independent situations. Specify whether any such exemptions would come under the qualifying child or the qualifying relative category :
a. Richard maintains a household that includes a cousin (age 12), a niece (age 18), and a son (age 20). The cousin and niece are full-time students, and the son is unemployed. Richard furnishes all of their support.
b. Minerva provides all of the support of a family friend's son (age 18) who lives with her. She also furnishes most of the support of her stepmother who does not live with her.
c. Raul, a U.S. citizen, lives in Costa Rica. Raul's household includes an adopted daughter, Helena, who is age 9 and a citizen of Costa Rica. Raul provides all of Helena's support.
d. Maxine maintains a household that includes her ex-husband, her mother-in-law, and her brother-in-law (age 23 and a full-time student). Maxine provides more than half of all of their support. Maxine is single and was divorced several years ago.
During the year, Wilbur received the following in connection with his father's estate:
- His father's will named Wilbur as the executor of the estate. He received $7,500 for serving as executor.
- Wilbur was also a beneficiary of his father's estate and received real estate that was included in the estate at a value of $100,000 that his father had purchased for $30,000.
- Wilbur was the beneficiary of one of his father's life insurance policies. He elected to collect the proceeds of the $100,000 policy in four installments of $30,000 each. Each $30,000 payment consists of principal and interest. He collected $30,000 this year.
Determine the effect on Wilbur's gross income.
Determine the effect on gross income in each of the following cases:
a. Eloise received $150,000 in settlement of a sex discrimination case against her former employer.
b. Nell received $10,000 for damages to her personal reputation. She also received $40,000 punitive damages.
c. Orange Corporation, an accrual basis taxpayer, received $50,000 from a lawsuit filed against its auditor who overcharged for services rendered in a previous year.
d. Beth received $10,000 compensatory damages and $30,000 punitive damages in a lawsuit she filed against a tanning parlor for severe burns she received from using its tanning equipment.
e. Joanne received compensatory damages of $75,000 and punitive damages of $300,000 from a cosmetic surgeon who botched her nose job.