A crucial part of retirement planning is life expectancy. How long a person expe

A crucial part of retirement planning is life expectancy. How long a
person expects to live is critical in determining the amount of money needed
for a comfortable retirement. As such, a lot of thought and number crunching
must be completed prior to the effective date of retirement.
According to the Bureau of Labor Statistics, the average retirement age in
the United States is approximately 62 for women and 65 for men, with the
average life expectancy for men at 75 years and women at 80.5. Taking this into
account, an individual’s retirement savings would need to last between 10 (men)
and 18.5 (women) years. Notwithstanding, don’t be fooled by these longevity
numbers; there is a good chance that many individuals will live well beyond the
above averages. Are you one of them?
To have a comfortable, financially secure, and enjoyable retirement, you
need to build the financial cushion that will fund it all. As with most
retirees, or those getting close to retirement, it is fun to dream and start
preparing for life after employment, but it makes sense to pay careful
attention to the serious and perhaps boring part – planning how you’ll get
there.
As discussed earlier in the semester, retirement planning starts with
contemplating what retirement looks like, setting financial goals, then saving
and investing to meet those goals. So….with the following simple set of facts:
1.
Imagine you are 62 years old, either
married or with a life-long partner who is also 62 years old. You both are in
excellent health, physically and mentally.
2.
You both have been wise savers
throughout your professional careers and have taken advantage of every
retirement account (IRA’s, 401k’s, personal savings, etc.). As of June 30th of
this year, you have amassed investable assets of $1.35 million. You own a
modest home in Denver, Colorado with a current value of $450,000, with no
mortgage.
3.
Each of you are fairly conservative
in your investment attitude and don’t necessarily trust the stock market.
4.
Both of you have decided to start
receiving Social Security payments at age 66, the earliest available time
period with expectation of full benefits. One person will receive $2,100/month
and the other $1,750/month. This will provide $46,200/year in taxable income.
5.
Medical expenses, living expenses,
and travel costs are estimated to be $78,500/year.
The assignment – Prepare a financial investment plan with the expectation
that you will need spendable assets until the ripe old age of 90 for both
participants. What I am looking for is a plan to invest the amount of assets
provided above, with the goal of meeting the time horizon for retirement,
paying all expenses, and following your need to remain somewhat conservative in
your investment philosophy.
The ideal plan will present the type of investment (stocks, bonds, real
estate, annuities, commodities, etc.), amount of money to be invested in each
type, length of investment, and how monies will be available to be spent
whenever necessary (for example, each year on December 31st, you
will be required to pay $5,000 in property taxes).
Please understand, the goal of the assignment is to make you aware of the
need to invest short-term (for expenses within 1-3 years), mid-term (for
expenses 4 – 8 years), and long-term (9-years or longer).
The plan can be presented pretty much any way you think is best; however,
if it were me, I would piece together a plan that is simple and straight
forward with a table illustrating the type of investment, amount to be
invested, and the time horizon for such investment. This would be followed by a
short statement explaining why this investment plan will work.
Grading will be based on (1) the totality of the investment plan, (2)
investment logic, and (3) reasonableness of your explanatory statement. The
final work product should be only two pages – one for the chart of investments,
and two, the written commentary supporting the plan.