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Mr. and Ms. Jones are age 62 and 64. Mr. Jones has worked for a factory for 35 years and they have two children. They have a small farm house and some land that is not paid off. Mr. Jones would like to retire this year. Here are their assets and liabilities.
- $6,000 in savings account
- 401(k) of $50,639 (Mr. Jones only added $1200 a year for 20 years and averaged 6% a year on his retirement savings.) Producing Income of $275 a month for 20 years at 3% growth.
- Social Security income $924 a month (drawing at 64 annual salary of $35,000 over life time).
- No life insurance (If the Jones were to pass away the children would inherit the home and land. They would also be responsible for the mortgage upon death and any stepped up capital gains tax on the sale of the property).
- $65,000 mortgage refinanced for 15 years at 6% interest for a payment of $548 a month.
- Medical insurance of $650 a month
- Medications of $250 a month
- House hold bills of $500 a month
Total monthly income from retirement earnings: $1,199
Total monthly liabilities: $1,948
Can Mr. Jones stop working? No
- Mr Jones is 64 years old and if he were to stop working he would be negative $749 monthly or $8,988 a year, depleting his savings.
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Mr. and Mrs. Smith are both 62. Mr. Smith has worked at the same factory as Mr. Jones for 33 years. Mr. Smith has two children and owns a home in town, he also has a mortgage on his home. Mr. Smith liked the idea of retirement from talking to Mr. Jones. Here are the Smith's assets and liabilities.
- $5,000 in savings.
- 401(k) of $132,029 (Mr. Smith added $1,200 a year since he started working 33 years ago and averaged 6% a year on his retirement savings) producing $718 a month for 20 years at a 3% rate of return on savings.
- ROTH IRA savings of $132,029 ($1,200 a year for 33 averaging a 6% return on savings) producing a monthly income of $718 a month for 20 years at a 3% rate of return on savings.
- Social Security income of $818 a month (drawing at age 62 with annual salary of $35,000 over life time).
- Life insurance of $100,00 (if the Smiths would pass away their mortgage and final expenses would be taken care of. Depending on tax situation any capital gains and tax incurred by sale of home could be paid by remainder of life insurance.)
- $75,000 mortgage refinanced at 6% interest for 15 years, a monthly payment of $633
- Medical insurance of $650 a month
- Medications $250 a month
- Household expenses of $500 a month
Total monthly income from retirement earnings: $2,254
Total monthly liabilities: $2,033
Can Mr. Smith stop working? Yes
- Mr. Smith is 62 years old (two years younger than Mr. Jones) if he were to quit working he would be adding to his saving $221 monthly or $2,652 a year.
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