MGT 458 California State Personal Financial Strategy and Decisions Questions

Question Description

Guidelines:

Financial Independence/Retirement Plan

1) What is your number and what age do you want to reach financial independence or retirement? (I’m 23 and I want to reach financial independence or retirement by like 30-35)

Calculate how much money you need a year to retire? What age would you like to retire or reach financial independence

1. 1. Social Security benefits are much more modest than many people realize; the average Social Security retirement benefit in June 2020 was about $1,514 a month, or about $18,170 a year. (The average disabled worker and aged widow received slightly less.)
  2. What does an average retirement cost? According to the Bureau of Labor Statistics: about $49,000 per year in 2014, the most recent year for which statistics are available. That means if you live for 20 years after you retire, you’ll end up spending about $980,000 (plus taxes, not accounting for inflation).Nov 19, 2019
  3. The average retirement age is 62, but 64% of Americans say goodbye to the workplace between the ages of 55 and 65. Also, many retirees go back to work. Some work part time, while others pursue a second career. Some even return to full-time work and then retire again in a few years.

2) How much money do you need to save and invest per month to reach your goals?

1. 1. Use the Compound Interest Calculator at https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator (Links to an external site.) to caluate how much you need to save and invest per month.
  2. What type of return should you expect if you invest your savings in U.S. equities. The S&P 500 index is a benchmark of American stock market performance, dating back to the 1920s. The index has returned a historic annualized average return of around 10% since its inception through 2019. If you use a different return number to calculate your performance please explain why.

3) Construct your personal portfolio to financial independence.

1. You can use a portfolio of these assets: Bonds (e.g., TLT), Equities (e.g., SPY), Precious Metals (e.g., GLD), Foreign equities (e.g, EEM), and Commodities (e.g., DBC). You can use any combination of assets you want. You can use any percentage of assets. You can also use other Asset classes not list here too. However, explain your reasons for your asset allocation and backtest this portfolio using the Portfolio Backtesting Tool available here: https://www.portfoliovisualizer.com/backtest-portfolio (Links to an external site.)
2. Plug your personalized portfolio annual return or (cagr) into the Compound Interest Calculator. How does this new return affect your savings goals?

3) Please describe your analysis and results. Discuss how investment returns shape your financial independence/retirement goals? How do factors such as how much you save a month, your investment return, age of retirement, as well as your expected financial needs/costs in retirement affect your calculations and financial plans?

Please write at least one page double spaced.

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