Case Study (So you want to retire)

Retirement – Your 50 year old single client (born 1970) wants to retire when she reaches age 65. She has always earned the maximum salary for Social Security purposes. She has always thought that $1.5 million would be a good amount to have available to finance retirement. So far she has managed to amass $400,000 in her 401(k) plan. For purposes of this exercise, assume she has no other savings and is debt free.
What is her full retirement age for Social Security purposes?
If she retires at full retirement age, what is a likely monthly SS income for her?
What is the SS implication for her if she retires at 65? Would you advise it? Why or why not?
Assuming her only retirement savings vehicle is the 401(k) plan and ignoring any employer contributions to the plan, how much does she need to contribute every year between now and retirement at age 65 to reach her target of $1.5 million if she can earn 6% annually? Explain your calculation.
Assuming she amasses her age 65 retirement nest egg sum, how much could she withdraw each month in retirement so that she had no money left in the account at age 100, again assuming that she could earn 6% annually?
Recalculate the amount she needs to save each year and the amount she can spend in retirement assuming that her real earnings are only 3% (6%, net of a 3% inflation factor).