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.