Elwood and Mary Houck are 50-year-old farmers. They have a combined retirement s

Question

Elwood and Mary Houck are 50-year-old farmers. They have a combined retirement savings account with a market value of $750,000 earning an 8.6% annual return. They both plan on retiring when they turn 60.
Elwood is going to continue farming for the next decade and hopes to save $15,000 per year for retirement. Mary, however, is tired of farming and plans to dedicate her time to her love of art. She is an accomplished painter and has sold several pieces of her artwork for thousands of dollars. She believes she can sell one painting every two years and contribute the proceeds to her retirement account. She has been told by experts that her work is worth $60,000 per painting.
When the couple retires, they will convert all their retirement assets into a fixed income mutual fund that pays 5.8% per year.
A. Compute the value of their retirement savings on the day they retire, assuming they both live, Elwood is able to maintain the farm by himself, and Mary sells five paintings.
B. Compute the couple's monthly retirement income assuming they live until they are 90.
C. Discuss the risks the couple faces over the next decade.
D. Discuss the risks the couple faces during retirement. Elwood and Mary Houck are 50-year-old farmers. They have a combined retirement savings account with a market value of $750,000 earning an 8.6% annual return. They both plan on retiring when they turn 60.
Elwood is going to continue farming for the next decade and hopes to save $15,000 per year for retirement. Mary, however, is tired of farming and plans to dedicate her time to her love of art. She is an accomplished painter and has sold several pieces of her artwork for thousands of dollars. She believes she can sell one painting every two years and contribute the proceeds to her retirement account. She has been told by experts that her work is worth $60,000 per painting.
When the couple retires, they will convert all their retirement assets into a fixed income mutual fund that pays 5.8% per year.
A. Compute the value of their retirement savings on the day they retire, assuming they both live, Elwood is able to maintain the farm by himself, and Mary sells five paintings.
B. Compute the couple's monthly retirement income assuming they live until they are 90.
C. Discuss the risks the couple faces over the next decade.
D. Discuss the risks the couple faces during retirement.

Explanation / Answer

Answer )

Assumptions: The rate of rteurn =8.6% per year compounding

All the contribution are done at the end of the year or two years period

answer B)

P = PV * r / 1- (1-r) ^ -n

Where , r= 5.8/12 and n = 30 years = 360 months

P = $ 13869.5 / month

Answer C) risk for decades are :

Answer D)

Risk during retirement are :

/

Rate of return on retirement corpus 8.60% Rate of return from accumumlated corpus 5.80% Current age 50 Retirement Age 60 Life expentancy 90

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