ITS Module II

Retirement Planning for Bob

Objective
At present level of savings how much will Bob have when he retires?
How long will this support him in case he withdraws every year 70% of his gross income at retirement given that the withdrawal will grow with rate of inflation and will be subject to income tax?

Assumptions
Bob will be in service until the age of 65 He will save a fixed percentage of his gross income (base income plus research grant) each year until retirement. The school will continue to contribute 10% of his base salary every year until retirement His assets will earn 7 percent/year up to retirement His salary will grow at 4% There will be no contingency requirement beyond the stated requirement of 70% of his last gross income The inflation rate will remain constant The rate of income tax for Bob will be constant
3

Model Structure
Salary Increase Contribution By School Asset as Of Now Return on Investment Pre-Ret

Return on Investment Post Ret

Base Salary

Yearly Savings

Asset at Retirement

Asset after 20 Years

Age of Zero Asset

Research Grant

Own Contribution

Income Tax Years until Retirement

Inflation

Withdrawal

Gross Salary

Fraction of Gross Salary Saved

Current Age Age at Retirement Gross Salary at Retirement

Fraction Withdrawn

Legend Outcome Factors outside control Factors within control