Exam 21: Taxes, Inflation, and Investment Strategy

An insurance company plans to sell annuities to investors. Based on actuarial calculations, an investor has a 15-year life span, and he wants a $30,000-per-year annuity, payable at the end of each year. If the insurance company uses a 4% assumed investment rate, how much should the annuity cost?

A worker plans to retire in 22 years. He needs $27,000 per year in retirement income in today's dollars. If inflation is forecast at 3.1% per year, what annual income should he plan to receive in the first year of retirement in order to maintain the purchasing power on $27,000?

A worker plans to retire in 32 years. He hopes to receive $68,000 per year in retirement income. If inflation is forecast at 3.1% per year, what annual income should he plan to receive in the first year of retirement in order to maintain the purchasing power on $68,000?

A bond portfolio and a stock portfolio both provided an unrealized pretax return of 8% to a taxable investor. If the stocks paid no dividends, we know that the ________.

Tilting your retirement savings plan toward your later years should only be done by investors ________.

The employees of a firm complain that they cannot afford to contribute $9,000 per year to a 401k because of the loss of $9,000 of take-home pay. In fact, how much will the take-home pay be reduced if all taxes combined total 33%?

What is the value of a $3,500 deposit into a retirement plan if the investment earns 10.5% per year for 20 years?

The calculation of a standard annuity, using the PMY function of Excel or a financial calculator, will produce an insufficient income because that approach fails to consider ________.

An investor may deposit $2,000 into a traditional or Roth IRA. After 30 years, given a 9% annual return and a 20% tax rate, how much more or less money will the investor have if all investments are liquidated after 30 years?

In planning for retirement, an investor decides she will save $15,000 every year for 45 years. At a 10% return on her investment, how much money will she have at the end of 45 years (to the nearest hundred thousand dollars)?

Sharon decides to put $6,500 into her retirement plan at the age of 26. She will continue to invest the same amount for a total of 6 years and then stop contributing. Assume 10.8% annual return. How much money will Sharon have in her retirement plan when she is ready to retire at age 63?

An investor must decide between putting a one-time contribution of $2000 into a regular retirement plan or putting $1,440 into a Roth retirement plan. If the investor's tax rate is 28% now and in retirement, and she expects to earn 12% per year over the next 20 years, which will produce more cash in the end?

An individual wants to have $57,000 per year to live on when she retires in 27 years. The individual is planning on living for 23 years after retirement. If the investor can earn 6.2% during her retirement years and 9.10% during her working years, how much should she be saving during her working life? (Hint: Treat all calculations as annuities.)

A regular retirement plan requires that taxes be paid at the time the money is removed from the plan. What is the after-tax value of a $6000 deposit into a retirement plan today that generates an 7% return for 20 years if the investor is taxed at the 24% level?

An investor wants to retire when she has $3,000,000 in savings, after-taxes. Given a 20% tax rate at retirement, how much money, per year, must she save in order to retire in 30 years, given an 11% annual return? Assume she uses a traditional IRA and liquidates the entire portfolio at retirement.

The Social Security system ________.

In planning for retirement, an investor decides she will save $3,000 every year for 25 years. At a 5.7% return on her investment, how much money will she have at the end of 25 years?

Withdrawals after retirement from a traditional retirement plan are ________, and withdrawals after retirement from a Roth retirement plan are ________.

One feasible way to hedge labor income is to ________.

Sharon decides to put $6,500 into her retirement plan at the age of 26. She will continue to invest the same amount for a total of 6 years and then stop contributing. Assume 10.8% annual return. How much money will Sharon have in her retirement plan after 6 years?