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Retirement Planning

Thomas is considering retiring and migrating to a rental property in the Virgin Islands. Thomas presently owns a home appraised at $595,000 with $300,000 remaining on the home loan. He has about $350,000 in savings right now. The Virgin Island rent will be $1,000 a month and he estimates that he and his wife can live on $3,000 a month in the Virgin islands. He figures that he will live for 25 additional years and can earn 5% in his funds.

a. Does he have sufficient resources to retire in the Virgin Islands?
b. A friend noted that he also will get social security benefits but also will have top pay taxes on funds coming from his tax-deferred retirement fund and the social security. If he expects $1,500 in social security income and 18% of the income coming from the retirement funds are deducted for taxes, can he afford the retirement plan at this time?

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Solution Preview

Please refer attached file for better clarity of functions in MS Excel.

a. Does he have sufficient resources to retire in the Virgin Islands?

Value of home=$595,000.00
Loan due= $300,000.00
Net expected value of home=595000-300000=$295,000.00
Total worth in hand=350000+295000=$645,000.00

Let us see what monthly payments he can get at 5% rate.
Present value of annuity=PV=$645,000.00
Interest Rate=RATE=5%/12=0.4167% per month
Number of ...

Solution Summary

Solution determines if the current financial resources can meet the retirement target in the given case.