Calculate the additional annual retirement


Dr. Maria G. Habanero

 

Personal Data

Age 43

College professor

Recent widow

Children:  Consuelo, age 14,  Guzman, age 9

 

Financial Data

Assets at fair market value

Cash (TIC)                                                                                            $   150,000

Stock- Los Manos Corporation (Cali, Colombia) (husband)                      50,000

Current State Retirement Plan balance                                                    17,025

IRA's

            Ricardo (Maria as beneficiary)                                                     50,000

            Maria                                                                                             20,000

Residence(JTWROS)                                                                                  350,000

Mortgage                                                                                                  320,000

Auto (2009 BMW)(corporate asset)                                                           35,000

 

 

Annual income and expense

Salary                                                                                                    $   70,000

Mortgage payment                                                                                   23,000

Income taxes                                                                                             11,500

FICA                                                                                                             5,700

Property taxes                                                                                             2,400

Auto                                                                                                             6,000

Health insurance                                                                                         3,000

Homeowner's insurance                                                                             1,200

Groceries                                                                                                  10,000

Utilities                                                                                                        2,400

Repairs/Maintenance                                                                                 1,200

Credit card payments- Entertainment and travel                                      3,600

    Total                                                                                               $    70,000

 

Maria has come to you for financial planning advice. She has identified three goals she wishes to accomplish:

1. Provide for the education of her two children.

2. Ensure that she will be able to maintain her lifestyle at retirement age (67)

3. Purchase a summer home in Colombia in 12 years. She plans to reside there full time after retirement as a US expatriate.

She provides you with the following information

- Currently she is contributing the minimum before tax contribution of 2% to the state employee retirement plan. The cap on allowed

contributions is 5% of salary. The university contributes a dollar for dollar match up to 5% of employee salary. She chose for her account

to be invested 50% in cash and 50% in bonds. She will be entitled to whatever balance is in her account at her retirement. The

University also offers a 403 (b) plan and a 457 plan for employees to contribute to. Investment choices range from money market

accounts to mutual funds investing in various stocks and bonds. Returns for all retirement plans are .5% for money market, 4.5% for

bonds and 10% for stocks.

- Her and her husband purchased the current residence three years ago for $ 450,000 with a $ 100,000 down payment. The balance

was financed at 6% for 30 years. She prefers to keep her current residence until the children are out of college.

- Because she lived in Cali for 10 years and has not adjusted very well to the move to the US, Consuelo wants to attend university in

Colombia. Currently, the annual cost of tuition, room and board for a foreign student averages $ 35,000 (US). The cost of college is

rising at the same rate as for US colleges and universities. The breakdown of the total cost is the same as the US averages. Guzman

will likely attend a US institution.

- Her husband died of a capsicum pepper overdose last month while judging a chili contest. His estate is still open. However, no estate

tax will be due.

- She has been teaching at the university for 3 years having returned to the workforce after an extended period of study to get her

PhD. She teaches only during the regular 9 month school year, preferring to have her summers off to relax and do research. Her annual

raises have been in the range of 3.5% annually. She is expecting to make full professor with tenure in another 5 years. This will yield a

one time raise in her annual salary of 15% after which her annual raises will return to 3.5% annually.

- Summer homes in Colombia similar to what she wants currently are in the $ 125,000 to $ 150,000 price range.

- Maria is not involved with the management of the corporation. The company pays no dividends now and does not anticipate that

dividends will be paid. Her deceased husband's shares represent a minority position in the ownership of the company. Colombia's

corporate statutes have no provisions for minority rights.

 

Given the above information, do the following:

1. Place Maria's goals in the proper order.

2. Calculate her income needs for retirement.

4. Calculate the additional annual retirement contributions she needs to make to accomplish her goal of maintaining her current lifestyle

in retirement.

5. Offer suggestions concerning sources of funds for the additional retirement contributions

Solution Preview :

Prepared by a verified Expert
Finance Basics: Calculate the additional annual retirement
Reference No:- TGS01153591

Now Priced at $25 (50% Discount)

Recommended (99%)

Rated (4.3/5)