Case 1: Estimating Early and Normal Retirement Benefits

Ben Dietrick, of St. Louis, Missouri, is age 35, single, and does not expect to marry. He is busily making plans for his retirement. He is anxious to maintain his current lifestyle without "scrimping," but still wants to actively start saving for his retirement to take advantage of compounding. Currently, Ben earns $40,000 per year, with an adjusted gross income of $39,000 and an after-tax income of $29,000. He anticipates receiving $10,000 from Social Security annually, and another $13,000 in pension benefits upon his retirement at age 65. If he retires at age 55, his pension benefits will be approximately $9,000. To date, Ben has about $10,000 of investments.

1. Using the Decision-Making Worksheet, calculate the additional amount of annual savings that Ben needs to set aside to reach his goal of retiring at age 55 with 70 percent of his current income.


2. What amount of savings for retirement would Ben need if he decided to work to age 65? Use the same worksheet to solve for the answer.


3. Would you recommend Ben invest in an IRA or a Roth IRA? Why or why not?


   

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