Kendall Claffey

Finance 333
Professor Powers
January 10, 2021
Retirement Saving Project

Investment Median Income 5th Percentile 95th Percentile Median Is your Median
allocation Income Income Portfolio Value Income >
Target
Replacement
Income (yes or
no)
0.333: Bond $284,447 $143,850 $604,086 $4,000,538.20 No
0.333: U.S. Equity
0.333: Int Equity
0.1: Bond $339,676 $130,834 $805,611 $4,777,293.54 Yes
0.6: U.S. Equity
0.3: Int Equity
0.3: Bond $301,988 $146,503 $696,415 $4,247,249.66 Yes
0.6: U.S. Equity
0.1: Int Equity
0.5: Bond $262,786 $151,662 $486,963 $3,695,899.71 No
0.3: U.S. Equity
0.2: Int Equity
Back 10 Years: $316,806 $153,753 $731,956 $4,455,655.76 Yes
0.1: Bond
0.6: U.S. Equity
0.3: Int Equity
Back 20 Years: $270,105 $140,703 $508,416 $3,798,832.31 No
0.1: Bond
0.6: U.S. Equity
0.3: Int Equity

While completing this project, I learned that saving for retirement at an early age is

extremely important. For the first 4 rows, my inputs were, birthday= 4/19/1993, desired

retirement age= 70, annual salary= $113,000, annual salary growth 2.75%, planned savings rate=

12%, company contribution= 6%, gender= female, desired retirement income level= 85%. I was

born on April 19, 2000, however, I moved my birthdate back 7 years to account for 1 more year

of undergraduate studies, 4 years of medical school and 2 years of residency (as a new resident,

you only make enough money for basic necessities of living). I chose to make my retirement age
70 because of the amount of school required for me to become a doctor. With all of the time I put

into my education, I will want to work as long as possible to be able to utilize and perfect all of

the skills I will learn over the years. I decided to make the annual salary growth rate 2.75%,

because at the end of my career my ending salary would be around $362,824

($113,000*1.0275^(70-27)) which is near the average salary of anesthesiologists. I planned to

save 12% of my salary because I won’t start working until my late 20’s and feel that I need to

compensate by saving a little more than 10%. With these factors in place, I used .3333 bond,

.3333 U.S. equity and .3333 international equity. In this case, my median income was less than

my target replacement income. I then changed the portfolio values to .1 bond, .6 U.S. equity and

.3 international equity. By doing this, my median income was greater than my target replacement

income ($339,676>$300,147). I was comfortable with these values because with my median

income being greater than my target replacement income, I would be living a life similar to the

one I was living while working. Another investment allocation I could possible use would be .3

bond, .6 U.S equity, .1 international equity. This also gave me a sunny outcome with my median

income being greater than my target replacement income ($301,988>$300,147). The 4th trial I

ran I used the investment allocations of .5 bond, .3 U.S. equity, .2 international equity. The

outcome was cloudy on this trial with my median income being less than my target replacement

income ($262,786<$300,147). I would not be comfortable with this income because I would

have to live more frugally than I would be while working.

The last 2 trials I altered my birthday, annual salary, and planned savings rate. On the

fifth row of the chart I moved my birthday back 10 years = 4/19/1983. I changed my annual

salary to $148,216.56 ($113,000*1.0275^10) to compensate for the 10 years I worked without

saving for retirement. Then I increased my panned savings rate to 20%, which is not ideal
because that means a ton of my pay- check will be allocated to saving for retirement and not for

current living expenses. My investment allocation was .1 bond, .6 U.S. equity and .3

international equity. The outcome was sunny with my median income being greater than my

target replacement income ($316, 806>$300,147). Although I would still be making enough to

not change my lifestyle during retirement, this situation would not be ideal. I would have to save

20% of my pay- check to make this happen, when I could’ve started saving 10 years earlier and

only had to save 12% of my pay- check. For the final trial, I moved my birthday back 20 years to

4/19/1973. I increased my salary to $194,408.41 ($113,000*1.0275^20) and changed my planned

savings rate up to 30%. I kept the investment allocations the same at .1 bond, .6 U.S. equity and

.3 international equity. The outcome was cloudy with my median income being less than my

target replacement income ($270,105<$300,147). This is not an ideal situation for 2 reasons. The

first reason being that I would have to change my lifestyle by making less than my target

replacement income. The second reason being that I would have to save >30% of my pay- check

which would take away from the money I would need to cover present day expenses. By

completing this project, I see the value in saving money for retirement as soon as you start

working. By saving money early on, you can keep a majority of your pay- check for present day

expenses and still be covered for retirement.