Discussion 1: Time Value of Money A. Examine the concept of time value of money in relation to corporate managers. What are two (2) specific examples that demonstrate how the time value of money can help corporate managers to make good financial decisions? B. Please respond to the following:Starting with your current situation, what must you do to ensure an annual retirement income of $60,000 starting at age 65? Make sure that you submit calculations that support the conclusions (you may use the Excel retirement calculators that are provided, online retirement calculators, or develop you own Excel solution).

BELOW IS WHAT THE PROFESSOR POSTED TO HELP WITH ANSWERING THE TWO QUESTIONS ABOVE 

Online Retirement Calculators -

 There are a number of online retirement calculators that may help with this question.

They use the Time Value of Money concepts that you are studying this week.

Here is one such calculator:

 

http://apps.finra.org/Investor_Information/Calculators/1/RetirementCalc.aspx

Can you find others?

http://www.bankrate.com/calculators/retirement/retirement-calculator.aspx

http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp

http://www.money-zine.com/Calculators/Retirement-Calculators/Retirement-Savings-Calculator/

http://www.aarp.org/work/retirement-planning/retirement_calculator/

http://money.msn.com/retirement/retirement-calculator.aspx

http://www.bloomberg.com/personal-finance/calculators/retirement/

http://www.bloomberg.com/personal-finance/calculators/retirement/

http://www.schwab.com/public/schwab/investing/retirement_and_planning/retirement/retirement_calculator

https://www3.troweprice.com/ric/ricweb/public/ric.do

SIMPLE TIME VALUE OF MONEY RETIREMENT CALCULATORS

Attached are three Excel files containing simple time value of money retirement calculators that you can try.

Two of the models do not accommodate inflation that will occur between now and the time retirement payments commence, nor do the models deal with inflation that will occur after retirement payments begin.

The first model (Basic Retirement Estimator) does not include the value of any existing retirement savings.

The second model (Retirement Estimator PB) includes the option to recognize the value of existing retirement savings.

The third model allows for estimating inflation between now and retirement age.

To use the models, it is necessary to enter the correct variables in the yellow-coded cells. Pay attention to the instructions about how the variables are to be entered (positive or negative amounts).

Also, remember that the algebraic signs of the “Amount You Have to Save Each Year” and the “Amount Required to Be Saved Monthly” are important. A negative amount is the amount you have to save (pay); a positive amount represents a periodic payment to you (this could occur in cases where it is assumed that there are sizeable existing retirement savings).

Can you develop your own calculator?

Can you find some useful online calculators?

Wall Street Journal - August 2, 2013

A New Way to Calculate Retirement Income  Is your nest egg large enough? A new tool could help you answer that vexing question. By KELLY GREENE and TOM LAURICELLA   (Note: The full text of this article can be viewed in Strayer University’s “Online Learning Center”; select “Online Databases,” then select “ProQuest,” and then “Search” using the article’s title. The database provides access to all Wall Street Journal and New York Times articles.)  Here’s the link: http://www.blackrock.com/cori ------------------------------ Questions for discussion:What is your opinion of this planning tool? What are the strengths? The weaknesses? ----------------------------- It is the most vexing question for people planning for retirement: Is my nest egg large enough? BlackRock, the world's largest money manager, is the latest firm to roll out a tool to try to answer it. On Wednesday, BlackRock unveiled what it calls the "Cori" index to help savers calculate how much they need to save to generate a specific lifetime income starting at age 65.  At the same time, it also filed prospectuses for bond funds linked to the index it says will aim to provide investors the returns needed to meet those goals. But what may be of greater help to people between the ages of 55 and 65 is a new BlackRock calculator, based on the Cori index, into which you can punch a few numbers and get a quick take on where you stand. 

For example, the index's closing price July 30 for an investor turning 65 in 2018 was $16.06, meaning it would take that amount to generate $1 in annual income for life starting at age 65. An investor who saved $750,000 could divide it by $16.06 to determine that those savings could generate an estimated $46,700 a year, the firm says. Likewise, a preretiree with a goal of $65,000 a year in retirement income could multiply that number by $16.06 to find he or she needs $1.04 million in savings to reach it. The tool could help participants in employer-sponsored 401(k) and other defined-contribution plans "understand what they're facing in terms of a shortfall," says Jack VanDerhei, research director at the nonprofit Employee Benefit Research Institute in Washington.  The retirement-income marketplace has been a tough nut for BlackRock and other mutual-fund companies to crack—a task made more challenging by the ultralow interest rates of recent years.  Within the 401(k) framework, "a lot of people are trying to figure out how to produce income," says Kevin Chisholm, an associate director at fund-industry consultant Cerulli Associates. BlackRock previously attempted to add a guaranteed-income option using annuities in its 401(k) funds but failed to get much traction among investment platforms or plan sponsors. The big reason that BlackRock and other asset managers have had a tough time getting employers on board, industry experts say, is because employers are waiting for the U.S. Department of Labor to propose rules governing lifetime-income options before expanding those offerings. Instead, many employers have stuck with target-date funds, which are aimed mainly at amassing money before retirement, not generating income during retirement. Target-date funds provide a mix of bond and stock funds designed to shift as the investor approaches retirement.To come up with the amount workers can expect to generate from each dollar in savings, BlackRock has factored in cash flows, annuity prices, interest rates and life expectancies.  

The firm fixed future inflation at 2.5% rather than linking it to the consumer-price index, since few annuities are linked to the CPI, says Chip Castille, head of the firm's U.S. and Canada defined-contribution group.  Mr. VanDerhei points out that retirees who receive Social Security retirement benefits already get a cost-of-living adjustment linked to inflation for that portion of their income.  There still is a missing link, he says: You'll have to figure out for yourself how much income you'll need each year in retirement. Rules of thumb range from 75% to more than 100% of preretirement income. As of the end of June, there were $5.8 billion in assets in BlackRock's target-date lineup, ranking the firm 11th among mutual-fund companies, according to investment research firm Morningstar MORN   +0.60% . By comparison, target-date-fund leader Fidelity Investments has $168 billion of the overall $545 billion in target-date funds. BlackRock's new bond funds could be used within the target-date funds it already offers, the firm says.  Fidelity and mutual-fund giant Vanguard Group also have designed portfolios that provide a steady income stream. But those strategies have struggled to attract investors, in part because their performance lagged behind in the financial crisis. Still, a few big employers are going ahead. United Technologies, for example, added a lifetime-income option to its 401(k) plan last year.  Write to Kelly Greene at kelly.greene@wsj.comand Tom Lauricella at tom.lauricella@wsj.com