Personal Finance Retirement Plan
Personal Financial Plan Assignment 8
There is no illustration for this assignment. What you need to do is prepare a cash budget for one year with the same format as you used for the Week 3 assignment. But the similarity ends with the format. This will be your retirement budget. You must have a minimum of 18 expense lines. Make sure you include the Cumulative Surplus line and that the cumulative surplus number for December matches the Total column total.
First, you must decide what do you want to do when your retire – travel around the world, buy a motor home and see the country, buy a cabin on a lake and fish, visit your children and grandchildren, etc. After you’ve given much thought to what kind of life you want when you retire, then you will prepare a monthly annual budget – January to December with a total column for the year to see what it will cost you.
You will have to do a lot of work to determine what your retirement revenue and expenses will be for this assignment. The amounts for both will be based on how much you will need to cover your expenses for the year you retire and the following years. Here are the assumptions you will make when preparing your budget:
1. First, I want everyone to assume they will retire at age 65. So if you’re 25 now (I am 29 Years old), you will have to be projecting what things are going to cost 40 years from now. The best way to do this is to look at the cost of things 40 years ago – 1980, and compare that to what they cost today. This is going to take research. For example, if a new car cost $7,000 in 1980 and $25,000 now, the increase is 357% (the formula for this is the amount of the new car – $25,000 – divided by the amount of the old car. So you could project that in 2060 an equivalent car would cost $89,250 ($25,000 x 357%). There are websites that will give you some historical cost information. Be prepared for some surprises. I would figure all of my expenses first, and then figure where the money was coming from. You must be realistic to receive any credit for this assignment. If you’re going to retire in 40 years, your total expenses per year will probably be between $350,000 and $400,000. But don’t be discouraged – wages also increase over 40 years. Google and you’ll come up with websites like ttp://www.thepeoplehistory.com/1970s.html
2. The second assumption is that you are not going to work after retirement. After you’ve figured out how much it will cost you to live and do the things you want to do, you need to determine where the money is going to come from – IRA’s, retirement accounts, social security, savings – to cover these expenses. Then you must look at the number of years you’ll be retired.
3. The third assumption is that you’re going to live for 20 years after you retire – to 85. So you will have to have enough funds to cover your expenses for 20 years. And these expenses will be changing each year. Just look at how much prices have changed since 1990.
4. Also assume that you own your own home, but you will have all the expenses associated with it including property taxes, insurance, utilities, maintenance and repairs. Each of these items will be on a separate line on your budget..
5. Another thing that will play a big role in your budget is how you’re going to cover your medical expenses. You’re old and your body is starting to shut down. You may assume Medicare will be available, but limited. You will have to have adequate medical insurance to cover your medical expenses. You’ve already done the insurance research in an earlier project. Now you can project how much one of these policies is going to cost when your retire and use that for your monthly premium. This is another line item on your budget. And don’t forget a line for medical expenses not covered by insurance. Make sure you have a line on your budget for health care and another for medical insurance. You’ll also need lines for car insurance and house insurance.
6. You will assume that you are single when you retire.
FINALLY, be absolutely realistic in all of your numbers. At the bottom of your budget you will need to tell me what year you plan on retiring and what sources you used to determine your expenses and any assumptions you made. You must have realistic numbers and assumptions in order to receive any credit for this assignment.
Do not resubmit the Week 3 budget with a few changes – this is an automatic zero. There will be no second chances on this assignment – no revisions for credit. What you submit by Sunday midnight will be final as in all assignments.