Projecting Retirement Income and Investment Needs
Lindsey and Brett Dunn
8/31/24
I. Estimated Household Expenditures in Retirement (Note 1):
A. Approximate number of years to retirement 30
B. Current level of annual household expenditures, excluding savings $ 77,500
C. Estimated household expenses in retirement as a percent of current expenses 80%
D. Estimated annual household expenditures in retirement (B * C) $ 62,000
II. Estimated Income in Retirement:
E. Social Security, annual income $ 42,000
F. Company/employer pension plans, annual amounts $ 9,000
G. Other sources, annual amounts $ -
H. Total annual income (E + F + G) $ 51,000
I. Additional required income, or annual shortfall (D - H) $ 11,000
III. Inflation Factor:
J. Expected average annual rate of inflation over the period before retirement 4%
K. Inflation factor: Based on 30 years to retirement (A) and an expected average annual rate of inflation (J) of 4% (1 + 0.04)^30 $3.24
L. Amount of inflation-adjusted annual shortfall (I * K) $ 35,677
IV. Funding the Shortfall:
M. Anticipated return on assets held after retirement 6%
N. Amount of retirement funds required - size of nest egg (L / M) $ 594,623
O. Expected rate of return on investments prior to retirement 8%
P. Future value of an annuity interest factor: Based on 30 years of retirement (A) and an expected rate of return on investments of 8% [(1.08^30) - 1 / 0.08]
Q. Annual savings required to fund retirement nest egg (N / P) $ 5,249
Note: Parts I and II are prepared in terms of current (today's) dollars.
