Retirement Planning

Mini Case I

1. What advice do you have for Mr. Road?

a) Mr. Road should consider adjusting his lifestyle and monthly expenses so he can reinvest from his retirement income 4% annually. If he does this, the amount he has invested will remain intact.

b) Mr. Road should consider traveling once per year. During the time he is not traveling he should make monthly deposits of US$250 (half of the money meant for monthly traveling expenses) into his savings account. This way he creates a fund for yearly travelling of US$3,000 plus the interest earned in said account.

c) Following the same line as our previous advice, Mr. Road can invest the monthly amount of US$250 in short term investments each year on the stock market assuring a return that will help him guarantee his future travels.

d) Mr. Road should consider investing the money from his savings account into his investment portfolio since the interest rate is higher (9% instead of 5%). This will increase the portfolio’s income by US$947 annually which in turn gives Mr. Road a positive balance of US$156 in the same period.

e) Since Mr. Road does not want to sell his house, we suggest that he rents two of the rooms in the second floor. Assuming that the two rooms have one bed each, he could have an income of US$500 monthly per room, which means he could be receiving an extra income of US$12,000 per year. The expenses related to his household can be deducted from this new income source. Therefore, this amount should be enough for all his travels and life expenses for the rest of his life.

f) Mr. Road could invest his life savings (the total US$12,000) in the stock market, ensuring a higher return rate than the 5% interest rate he already has in the bank account. Since he can withdraw the money from the stock market at any given time he will be able to do so if there are unexpected expenses or emergencies.

2. Can he safely spend all the interest from his investment portfolio?

Mr. Road...