Larry is 58 and wants to retire by age 65 He expects that he

Larry is 58 and wants to retire by age 65. He expects that he will live to age 95. He currently has a salary of $140,000 and expects that he will need about 72% of that amount annually if he were retired. He can earn 9 percent in his portfolio while he is working. However, he expects that he will only earn 7 percent in his portfolio during retirement because he will adjust his asset allocation so that his portfolio is more conservative. He expects inflation to continue at 3 percent. Larry currently has $800,000 invested for his retirement. His Social Security benefit in today’s dollars is $24,000 per year, assuming a retirement of age 65. He just calculated what he needs to save each year and it is more than he can afford. Which of the following is his best alternative to achieve his retirement goals?

A. Modify his portfolio during retirement to achieve an 8% rate of return instead of a 7% rate of return.

B. Delay his retirement by 2 years.

C. Reduce his expected needs by $10,000 in today’s dollars.

D. None of the above will help him achieve his goals.

Solution

answer is option C Reduce his expected needs by $10,000 in today’s dollars.

The change is rate of interest or period ofcourse help in increasing the retirement benefits.

But the change in expected amount will greatly help in achieving retirment goals.