Personal Financial Planning For Retirement


Elena Diaz is 57 years old and has been widowed for 13 years.  Never remarried, she has worked full-time since her husband died—in addition to raising her two children, the youngest of whom is now finishing college.  After being forced back to work in her 40s, Elena’s first job was in a fast-food restaurant.  Eventually, she upgraded her skills sufficiently to obtain a supervisory position in the personnel department of a major corporation, where she’s now earning $58,000 a year.

Although her financial focus for the past 13 years has, of necessity, been on meeting living expenses and getting her kids through college, she feels that now she can turn her attention to her retirement needs.  Actually, Elena hasn’t done too badly in that area, either.  By carefully investing the proceeds from her husband’s life insurance policy, Elena has accumulated the following investment assets:
Money market securities, stocks, and bonds           $72,600       
IRA and 401(k) plans                                           $47,400    

Other than the mortgage on her condo, the only other debt she has is $7,000 in college loans. Elena would like to retire in 8 years, and she recently hired a financial planner to help her come up with an effective retirement program. He has estimated that, for her to live comfortably in retirement, she’ll need about $37,500 a year (in today’s dollars) in retirement income.

After taking into account the income Elena will receive from Social Security and her company-sponsored pension plan, the financial planner has estimated that her investment assets will need to provide her with about $15,000 a year to meet the balance of her retirement income needs.  Assuming a 6% after-tax return on her investments, how big a nest egg will Elena need to earn that kind of income?


The question belongs to Finance and it discusses about a scenario where a 57 year old working woman hires a financial planner to help her come up with a good retirement plan. The financial planner helps her in assessing the amount that she has to invest a year in order to meet her retirement income needs. The calculation has been given in the solution.

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