A Retirement Plan

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Recommend a personal retirement plan for a client that you identify. Support your recommendation to the client by explaining how the plan meets the client’s needs and mitigates risk. In addition to the required page total, include the required appendices. Required appendices may be tables, pie charts, and/or other appropriate figures.

Scenario
This week, you continue in the role of retirement planner you took on for the Week 7 assignment. You will identify a client, create a retirement plan that meets that client’s needs, and recommend the plan to the client.

Instructions
In a 5-6 page paper, complete the following:

Identify a person, couple, or family for whom you are creating the plan. Describe the person, couple, or family (no name is required, but it can be you, someone else, or someone you imagine). Each of the following items is important because your recommendations must align with them:
Include the factors that are important to know when developing a retirement plan (age, marital status, number of dependents, health, life expectancy, and other sources of income such as social security and pensions).
Identify a desired age of retirement and retirement income (assume these were provided by the client).
Describe the client’s personal risk tolerance (assume this information was provided by the client).
Develop a personal retirement plan that identifies required savings before retirement and planned savings and withdrawals before and after retirement. Support your explanation of this plan with the following appendices:
Annual and monthly savings before retirement (in addition to the required page total).
Annual and monthly withdrawals after retirement (in addition to the required page total).
Recommend asset allocations that mitigate risk based on the client’s profile, such as age, marital status, and personal risk tolerance, and based on the riskiness of the assets. Provide the following appendix to support the original and changing allocation of asset classes:
Asset allocation over the life of the plan (in addition to the required page total)

 

Sample Solution

Client:

John Doe is a 45-year-old single male with no dependents. He is in good health and expects to live to be 85 years old. John receives a salary of $100,000 per year and has no other sources of income. He is currently saving 10% of his salary for retirement. John’s desired retirement age is 65 and his desired retirement income is $60,000 per year. John’s risk tolerance is moderate.

Retirement Plan:

To meet John’s retirement goals, he will need to save $1,000,000 by the time he retires at age 65. To do this, he will need to save $12,500 per year. John can increase his savings rate by reducing his expenses or by finding ways to earn extra income.

John’s retirement plan should include a mix of investment assets to diversify his risk and maximize his returns. A good starting point would be to allocate 50% of his assets to stocks and 50% of his assets to bonds. As John gets closer to retirement, he may want to reduce his allocation to stocks and increase his allocation to bonds to preserve his capital.

Required Savings Before Retirement:

John’s required savings before retirement is $1,000,000. To reach this goal, he will need to save $12,500 per year for 20 years.

Planned Savings and Withdrawals Before and After Retirement:

Before Retirement:

Age Annual Salary Savings Rate Annual Savings Total Savings
45 $100,000 10% $10,000 $10,000
46 $100,000 10% $10,000 $20,000
47 $100,000 10% $10,000 $30,000
… … … … …
64 $100,000 10% $10,000 $990,000

After Retirement:

Age Retirement Income Withdrawal Rate Annual Withdrawals Total Assets
65 $60,000 6% $3,600 $990,000
66 $60,000 6% $3,600 $986,400
67 $60,000 6% $3,600 $982,800
… … … … …

Risk Mitigation:

John can mitigate risk in his retirement plan by diversifying his investments and by rebalancing his portfolio regularly. Diversification means investing in a variety of different asset classes, such as stocks, bonds, and real estate. Rebalancing means adjusting the allocation of assets in his portfolio to maintain his desired risk tolerance.

John can also mitigate risk by purchasing retirement income insurance. Retirement income insurance can provide him with a guaranteed income stream in retirement, regardless of how the markets perform.

Conclusion:

John can achieve his retirement goals by saving $12,500 per year and by investing his savings in a mix of investment assets. He should also diversify his investments and rebalance his portfolio regularly to mitigate risk.

Appendices:

Appendix A: Retirement Savings Calculator

The following table shows how much John will need to save each year to reach his retirement savings goal of $1,000,000:

Annual Savings Rate Annual Savings Total Savings in 20 Years
10% $12,500 $1,000,000
15% $18,750 $1,500,000
20% $25,000 $2,000,000

Appendix B: Retirement Income Calculator

The following table shows how much income John can generate each year from his retirement savings, assuming a 6% withdrawal rate:

| Retirement Savings | Annual Withdrawals | |—|—|—| | $1,000,000 | $60,000 | | $1,500,

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