Mr. John & Jane Doe, both age 50. Jane is a home-maker. John’s current salary is $100,000 and his salary is expected to grow 3% a year. He plans to retire at age 67 and both John & Jane receive Social Security benefits at age 67. Both John and Jane are expected to live until age 97 (i.e., 30 years after retirement).
According to John’s Social Security statement, John is projected to receive about $4,000 a month at his age 67 and Jane is expected to receive 50% of John’s PMI at her age 67. John has contributed 6% of his salary with 3% employer matching into a 401 (k) plan that has earned 8% return a year. He has accumulated about $150,000 in his 401 (k) account so far. He plans to contribute the same rate until his retirement (17 annual contributions from age 50 through age 67). John also has accumulated about $75,000 in his Roth IRA account. He plans to contribute $5,000 a year into a Roth IRA that would earn 6% annual return until age 67.
Upon his retirement, he plans to withdraw to buy a 30-year annuity contract at 6% annual interest rate, but annual payments will be decreased by 3% a year. His annuity will make payments at the beginning of each year until his age 97 (a total of 30 payments from age 66). Ignore income taxes.
5. (3) Projected total first-year retirement income including Social Security benefits: