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December 7th, 2016, 06:39 PM   #1
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Finance/Retirement plan/TVM problem

You have clients who are just beginning to think about planning for retirement. They are both 35 years old and have 85,00 in a company retirement plan which they can roll over into their own plan. They want to retire at 67 but are wondering what effect retiring a year or two earlier or later will have on their retirement. Their combined income is 120,000 per year, and they want to finance the same income in retirement. When they retire, they can purchase a two-life annuity with an expected second death at age 87.

Prepare a plan with some alternative rates of return and retirement dates and explain what annual contributions they must make.

Last edited by skipjack; September 2nd, 2018 at 11:40 PM.
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December 7th, 2016, 07:46 PM   #2
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Quote:
Originally Posted by hanjy View Post
You have clients who are just beginning to think about planning for retirement. They are both 35 years old and have 85,00 in a company retirement plan which they can roll over into their own plan. They want to retire at 67 but are wondering what effect retiring a year or two earlier or later will have on their retirement. Their combined income is 120,000 per year, and they want to finance the same income in retirement. When they retire, they can purchase a two-life annuity with an expected second death at age 87.

Prepare a plan with some alternative rates of return and retirement dates and explain what annual contributions they must make.
Are you serious? You want us to do all the work?
Why don't you show us what YOU've done so far...

Can you handle this:
Initial investment: 85,000
Term: 67-35 = 32 years
Annual rate: 5%
Required total investment after 32 years: 1,500,000
What annual contribution must be made to achieve above?

Last edited by skipjack; September 2nd, 2018 at 11:41 PM.
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December 7th, 2016, 08:09 PM   #3
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I plugged those numbers into a financial calculator
pv = -85,000, n = 32, i = 5, fv = 1,500,000
pmt = -14541.79
Could you explain how you got interest to be 5% and total investment after 32 years to be 1,500,000?
What does the 2 life annuity with an expected second death at 87 mean?

Last edited by skipjack; September 2nd, 2018 at 11:43 PM.
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December 7th, 2016, 08:21 PM   #4
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Quote:
Originally Posted by hanjy View Post
I plugged those numbers into a financial calculator
pv = -85,000, n = 32, i = 5, fv = 1,500,000
pmt = -14541.79
Could you explain how you got interest to be 5% and total investment after 32 years to be 1,500,000?
That had NOTHING to do with the problem; I wanted to see if
you could calculate such an example WITHOUT a financial calculator.

Quote:
Originally Posted by hanjy View Post
What does the 2 life annuity with an expected second death at 87 mean?
Are you saying you were given that problem and your teacher gave no explanations?

Last edited by skipjack; September 2nd, 2018 at 11:45 PM.
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September 2nd, 2018, 07:51 PM   #5
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I think this problem could definitely be done multiple ways.

Last edited by skipjack; September 2nd, 2018 at 11:48 PM.
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