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Develop a Retirement & Capital Needs Analysis

Larry is 40 year old and has never married. He wants to retire at age 62 with an 80% wage replacement ratio. Larry currently earns $100,000 as an employee and has managed to save $100,000 towards his retirement goal (including investment assets and cash equivalents). He is currently saving $5,000 per year in his 401(k) plan. His employer's plan calls for a 50% match for contributions up to an employee elective deferral of 6%.

Financial Goal: Larry's primary goal, for this example, is to retire at 62 with an 80% wage replacement, including Social Security, projected to be $30,000 in today's dollars at normal retirement age of 67. He wants to plan for a life expectancy to age 95.

Economic and Investment Information:
General inflation is expected to average 3.0% annually for the foreseeable future.
Larry's expected investment portfolio rate of return is 8.5%
Larry's marginal income tax rate is 25%.

Calculate how much Larry will need on the day he retires to meet his retirement goal.
Calculate how much he needs to save regularly to meet his retirement goal. (Discuss if he can meet his current retirement goal with his current savings pattern).
Provide 3 alternatives for Larry to consider and explain why each alternative might work. (Explain why each alternative might or might not work and explain why).

Solution Preview

Please see attached files for the guide.

Retirement & Capital Needs Analysis Case

1. I assumed that the 6% employee elective deferral is NOT included in the $5,000 a year that Larry contributes to his 401(k) plan. This continues until Larry retires.
2. Larry's salary and consequently his contribution to the 401(k) and his employer's match increases by the inflation rate until he retires
3. Pension from SSS can be adjusted to the dollar value up to age 67, after which, the amount ...

Solution Summary

Word and Excel documents attached find how much a man will need to save to retire.