Complete the following problems:
1. Describe the two types of tax-deferred investment accounts [an IRA, and a 401(k) or 403(b)], and contrast them with a regular taxable investment account.
2. Describe the advantages to using a College Savings 529 Plan over gifting money directly to your children in the form of a Uniform Gift to Minor Account (UGMA). What are some costs and disadvantages of 529 plans? What types of 529 plans are available in your state?
3. Using the Social Security Retirement Estimator (http://www.ssa.gov/estimator/), or the Social Security Quick Calculator (http://www.ssa.gov/OACT/quickcalc/index.html), determine your retirement age and estimate the retirement benefits (in today's dollars) you will receive from Social Security if you work to your full retirement age.
Estimate your necessary monthly living expenses (in today's dollars) when you retire and calculate the shortfall between this amount and your estimated social security benefit.
How much money would you have saved for retirement if you saved $400 per month for the next 35 years with a rate of return of 6% per year, compounded monthly? Show your calculation ( You can show what you entered in an excell spreadsheet, financial calculator, or financial website).
4. Read "Case in Point - A Single Father's Tax Situation" in Ch. 3 of your text. Answer the following questions:
What are Eric's major financial concerns in his current situation?
In what ways might Eric improve his tax planning efforts?
Calculate the following:
What is Eric's taxable income? (Refer to Exhibit 3-1)
What is his total tax liability (Use the Tax Rate table)?
Based on his withholding, will Eric receive a refund or owe additional tax? What is the amount?
5. Use the "Figure It Out!" workhsheet in Ch. 10 of your textbook in the "Estimating Your Life Insurance Requirements" section to calculate your own life insurance needs. What are the major provisions of a term life, whole life, and variable life policies? Which one do you think makes sense for you? Why?
6. Go to this website (https://www.ipers.org/members/estimate-your-benefits/asset-allocation-calculator) where you will find an asset allocation calculator provided by the Iowa Public Employees' Retirement System. According to this calculator, what is the recommended stocks, bonds, and cash asset allocation for an investment portfolio if
1) Age: 30, Current Assets: $10,000, Savings per year of $5,000, Marginal tax rate 25%, Income required: zero, Risk tolerance: 8
2) Age: 55, Current Assets: $350,000, Savings per year of $5,000, Marginal tax rate 28%, Income required: zero, Risk tolerance: 5
3) Age: 25, Current Assets: $1,000, Savings per year of $3,000, Marginal tax rate <15%, Income required: zero, Risk tolerance: 10
4) Age: 70, Current Assets: $550,000, Savings per year of $0, Marginal tax rate <15%, Income required: 4%, Risk tolerance: 1
7. Read "Case in Point - Planning for Retirement" in Ch. 14 of your text. Answer the following questions:
In the past, many workers chose to stay with their employers until retirement. What was the major reason for employee's loyalty?
How did Maureen amass $1.4 million for retirement, while Therese could only accumulate $553,000?
Why do women need to start early to save for retirement?
What expenses may increase or decrease during retirement?
References
Kapoor, J. R., Dlabay, L. R., & Hughes, R. J. (2013). Focus on personal finance (4th ed.). New York, NY: McGraw-Hill.