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Financial Planning Quiz

Methodology

To calculate your financial requirements for your retirement, you must first estimate what your yearly financial needs will be during your retirement. By default, it is assumed that, on average, one person will spend $70,000 per year with the current standard of living. This number will be increased yearly based on the inflation rate until you reach age 66. The average spending after retirement will be adjusted based on your spending preferences.

 

After setting up the retirement period spending preferences, you will input demographic and financial variables to determine your financial situation for when you turn 66 years old. The final output will show whether you will have enough funds to finance your yearly living expenses based on the budget you previously determined.

 

The model used for this quiz takes into account your gross income, monthly savings, mortgages, loans, and the costs raising children to determine a final value for your retirement. The quiz model assumes that the current saving balance, the 401k balance, and the yearly saving amount will be invested in a diverse portfolio, which will generate an average return of 4.00% compounded annually. The model also assumes that after retirement, you will not have any other source of income except the payment distributions from the saved balance and the social security payments. The yearly payment amount is determined by the Time Value of Money formula, which assumes that the reaming balance after each payment will generate an interest return of 4.00%. The balance will be utilized entirely when the user turns 90 years old. Lastly, the model assumes that all the input variables provided by you will remain static throughout the calculation period. If you experience a significant change in the input variables, it would be necessary to recalculate.

 

Input Variables:

Age: What is the current age of the user?

Status: Is the user single or married?

State: Which state does the user reside?

Annual Income: What is the total gross annual income of the user?

Marginal Propensity to Save: What percentage of your disposable income can you save?

Current Saving Balance: What is your current saved balance ?

401k Contribution: What percentage of your income can you contribute to your 401k? – max 5%

Mortgage Details: Outstanding balance of your mortgage, remaining years, and interest rate

Other Loan Details: Outstanding balance of your loan, remaining years, and interest rate

Children Details: Number of children and age of each child

 

Assumptions:

Salary Increase: 2.00% yearly

Inflation rate: 2.00% yearly

Return on Investment rate: 4.00% yearly

Age of retirement: 66

Life Expectancy: 90

Children: Children are taken care of until they turn 21 years old. After that it is assumed that they are in need of financial assistance. The current average yearly cost of raising a child is assumed to be $12,000. This amount increases at the inflation rate.

Social security payment: $18,000 per year

 

Disclaimer notice: All the above calculations are performed based solely on the input variables provided by the users. This quiz model does not guarantee that these calculations will be relevant to every case.