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## 16 Mar Personal Financial Planning – Why perform a retirement

Personal Financial Planning
1. Why perform a retirement needs analysis?
2. Contrast simple and risk-adjusted capital needs analysis. 3. Identify the advantages of Monte Carlo simulation.
4. What is total portfolio management?
5. Why is overhead cost considered a liability under TPM?
6. Should a comedian and a government employee receive the same financial asset allocation if they have similar tolerances for risk? Why?
7. Provide a reason why a real estate salesperson should not have the same amount allocated to his or her home as the average person.
8. Discuss the planning steps in a simple capital needs analysis.
9. Why bring figures from today to the beginning of the retirement period?
10. When should the investment rate, the blended rate, and the inflation rate be used, respectively?
11. List the steps in the retirement needs analysis.
12. What are the weaknesses of the withdrawal rate method?
13. What are the advantages of the withdrawal rate method?
14. Why can it be beneficial to raise or lower the withdrawal rate in response to market fluctuations?
15. What factors would cause one to increase the withdrawal rate?
16. What factors would cause one to decrease the withdrawal rate? S
17.1 If the investment rate of return is 7 percent after tax and the inflation rate is 4 percent, find the blended rate of return.
17.2 Eleanor needs \$40,000 a year to live on in retirement net of the income she will receive. She will be retiring in 22 years and is funding for a 25-year retirement. The inflation rate is expected to be 3.5 percent a year and the after-tax return on her investments 6 percent.
a. How much will the shortfall amount to at the beginning of the retirement period?
b. What lump sum will she need at the beginning of the retirement period?
c. What is the required yearly savings?
17.3 Frank, age 28, wants to calculate his resources in real (inflation-adjusted) terms. Calculate the amount of resources made available by age 65 retirement if \$18,000 a year is saved. Assume that outflows from ages 65 to 90 are at the rate of \$27,000 a year. The projected inflation rate is 4 percent, and the anticipated investment return is 6 percent.
a. How much in new savings will Frank have available at age 65 before subsequent withdrawals?
b. How much will he have left at age 90?
c. What is the present value of that sum at age 65?
d. How much will he have to save per year to exactly meet his need? Questions