Nmsu Library Guide Business New Mexico State Univ
Use the Excel spreadsheet provided to calculate the amount of money you need to save per month, in order to maintain your ideal retirement standard of living.
Investment Horizon: This would be the time from your expected graduation date (including any anticipated graduate degrees if you plan to attend graduate school immediately after obtaining your undergraduate degree) until your expected death. Mortality tables from the life insurance fact book are provided on the last page of your syllabus so that you can determine your expected investment horizon, based on your current age. Please note that this time frame should be broken down into two segments. 1 – from your expected graduation date age until the age of your anticipated retirement (accumulation period) and 2 – from your anticipated retirement age until expected death (retirement period). Note: These mortality tables provide your expected life BEYOND your current age:
Overall Investment Goal: Indicate here what percent of your pre-retirement income you anticipate you will need during retirement. (Usually 50% – 100% or more).
Step 1: Compute your expected yearly earnings immediately before retirement. Note that 3.03% is the average inflation rate from 1926-2006 as provided in the Ibbotson Associates Data on the bottom of the last page of this document. You are free to choose a salary growth rate greater than the rate of inflation and to consider anticipated promotions during your working years. Please also note that all computations should be rounded to the nearest whole dollar.
Step 2: Compute the amount needed at retirement to fund the expected retirement gap. This will be some portion (percentage) of your yearly earnings at retirement. Here you need to make some estimate of the percent of your pre-retirement salary that you will have to provide for. You may be working for an employer with a defined benefit or defined contribution retirement plan. The social security system may also provide a small portion of the needed funds.
Step 3: Compute the amount required to be saved each year in order to fund the retirement gap. You are required here to perform a sensitivity analysis on the required savings needed to fund the retirement gap by choosing a very conservative, a moderate, and a very aggressive investment return. In this example, I will again use Ibbotson Associates Data for the three strategies. You should use whatever return source you prefer as long as your source is identified and international investments are included in the three scenarios examined.
Conservative (T-Bills) 3.5%
Moderate (50/50 T-Bills & Common Stocks) 7.0%
Aggressive (Common Stocks) 10.5%
Base all computations on your own personal situation. This research project can be a valuable beginning toward a sound lifetime investment strategy. Adapt the analysis to your own unique circumstances.
Written Analysis – minimum of one page, maximum of 3 pages
Describe when you expect to retire and how you will provide the income to do so. How much money will you need to save each month, over what time period to accomplish your goal? How much can you expect from Social Security? If you are working for a government agency or a company that has a defined benefit plan be sure to include that.
Be specific regarding the types of investments you plan to use in your retirement package (stocks, bonds, mutual funds, ETF’s, real estate, etc.) and make sure to include an international component as part of your overall asset allocation package. You are encouraged to obtain information from at least one of the major mutual fund companies about their retirement investment products. You can go directly to their websites for the information needed. You can also use the following sources to look up information on specific investments: