Question

You have been hired by Mr. Josiah Prince as a retirement planner. He has asked you to map out a plan for one of the first clients of his new firm Di/Rad Investments. The client, his good friend Ms. Jennifer Ledger, is now 25 years old, and wants to begin making deposits into her retirement account beginning on her 26th birthday in December 2015. After interviewing Ms. Ledger, you have mapped out the following plan based on her tolerance for taking risks:

Dec. 2015-Dec. 2044: Make annual deposits into a high growth fund yielding 12.5% per year;

Dec. 2045: Move all funds into a mixed growth/income fund earning 8.0% per year.

Dec. 2045-Dec. 2059: Continue making annual deposits into the mixed fund;

Dec 2060: Move all funds into an income fund earning 4.0% per year.

Dec. 2060 – Dec. 2084: Withdraw $450,000 per year with the intention of depleting the account balance by the end of Dec. 2084

Ms. Ledger has budgeted $7,000 per year to be deposited into the fund between now and the end of Dec. 2044. You will need to advise her as to how much she will need to deposit each year between Dec 2045 and Dec. 2059 in order to reach her retirement goal. She also thinks that the risk of the high growth fund may be too much, so she is also asking you to make the calculations for a plan in which the first set of $7,000 deposits are made into an account earning 10% instead of the 12.5%, and to show her the differences between the two, preserving the goal of annual withdrawals of $450,000.

Mr. Prince has asked you to make the calculations and provide a one-page memo addressed to Ms. Ledger regarding her retirement plan. Include exhibits that show the results of your calculations for reference.

Also: Provide an answer to the following question:

Mr. Prince and Ms. Ledger most likely met at a:

1. Local tavern

2. Football game

3. Music festival

4. Art museum

5. Ski vacation

Explain your answer.

Answer 1

Required Value at Dec 2060 to withdraw 450000 per year till 2084
Present value of Payment using PMT	$7,029,935.97
Present Value of 7029935.97 in 2045	$2,216,129.00
Future Value in 2045 for making 7000 per year from 2015	$534,525.26
The difference in value is covered by payment per year from 2045 to 2059
Differecne to be filled=2216129-534525.26=	$1,681,603.75
Using PMT Function for PV of 1681603.75	$157,530.59
He should deposit $157530 each year from 2045 to 2059 to get the desired goal
If Iniital intrest rate is 10% in place of 12%
Future Value in 2045 for making 7000 per year from 2015	$400,925.00
The reqiuired Difference	$1,815,204.01
Payment each year deposited from 2044 to 20159 to bridge the difference	$170,046.10
Increase in payament deposit per year due to leass risky investment	$12,515.51