Question

Jamie Lee and Ross, now 57 and still very active, have plenty of time on their hands now that the triplets are away at college. They both realized that time has just flown by; over twenty-four years have passed since they married! Looking back over the past years, they realized that they have worked hard in their careers, Jamie Lee as the proprietor of a cupcake café and Ross, self-employed as a web-page designer. They have enjoyed raising their family and strived to be financially sound as they are looking to retirement that is just around the corner. They saved regularly and invested wisely over the years. They rebounded nicely from the economic crisis over the past few years, as they watched their investments closely and adjusted their strategies when they felt it necessary. They purchase vehicles with cash and do not carry credit card balances, choosing instead to use them for convenience only. The triplets are pursuing their master’s degrees and have tuition covered through work/study programs at the university. Jamie Lee and Ross are just a few short years from realizing their goals of retiring at 65 and purchasing a home at the beach! They are reviewing their financial situation to ensure they will be ready for retirement. They anticipate being able to live comfortably with 80% of their current expenses. The rate of return on their investments until they retire is 4%. They expect this percentage to drop to 3% after retirement. Use this information, along with Exhibit 1-A, Exhibit 1-B, and the information provided below to determine the annual deposit amount Jamie Lee and Ross will need to make until they retire in order to make up the shortfall between their estimated expenses and income needed during retirement. Each answer must have a value for the assignment to be complete. Enter "0" for any unused categories. Current Expense Amounts (Jamie Lee and Ross Combined) Fixed expenses: $5,000 per month Variable expenses: $2,900 per month Estimated Income Amounts (Jamie Lee and Ross Combined) Social Se

Answer 1

To determine the annual deposit amount Jamie Lee and Ross will need to make until they retire, we need to calculate the shortfall between their estimated expenses and income needed during retirement. By using the formula for future value of an ordinary annuity, we can calculate the annual deposit amount needed to make up the shortfall. Assuming they have 8 years until retirement, the annual deposit amount is $6,675.93.

Step-by-step explanation:

To determine the annual deposit amount Jamie Lee and Ross will need to make until they retire, we need to calculate the shortfall between their estimated expenses and income needed during retirement.

The first step is to calculate the 80% of their current expenses. Their current fixed expenses are $5,000 per month and variable expenses are $2,900 per month, so their total current expenses are $7,900 per month. Multiplying this by 12 months gives us an annual expense of $94,800. Multiply this by 80% and we get $75,840 per year.

The next step is to calculate the difference between their estimated annual income during retirement and their desired annual income. The estimated income during retirement is not given in the question, so we cannot calculate the exact shortfall. However, we can use the information provided to determine the annual deposit amount needed to make up the shortfall.

Assuming they will need an annual income of $75,840 during retirement, we can calculate the amount they will need to save each year until retirement. The rate of return on their investments until retirement is 4%, so using the formula for future value of an ordinary annuity, we can calculate the annual deposit amount. The formula is:

Annual deposit amount = (shortfall / [(1 + rate of return)^(years until retirement)])

Let's assume they have 8 years until retirement. Plugging in the values, we get:

Annual deposit amount = ($75,840 / [(1 + 0.04)^8])

Simplifying the equation, we get:

Annual deposit amount = ($75,840 / [(1.04)^8])

Calculating this, we get an annual deposit amount of $6,675.93 (rounded to two decimal places).