Question 1

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A company contributes 9.5% of total compensation into Profit Sharing Plans on the basis of Age Weighted Maximum Contributions of $50,000 to Owner. It uses 7.75% as interest factor and pays the following compensation to its three employees: Elizabeth (age 52): $145,000; Santiago (age 39): $115,000 and Jennifer (age 30): $45,000. The retirement age for these employees is 67 years. Calculate the total contribution as % of compensation for this company?

Question 2

Today Margret age, 67 is retiring from a job where she participated in Defined Benefit Plan for last 34 years. She expects to live till age, 85 and would receive pension at the beginning of every month. This Defined Benefit Plan uses Unit Credit Formula to compute monthly benefit based on 1.98% of average of five highest salaries multiplied by number of years of services. The ten highest annual salaries for Margret are: $78,000; $83,000; $77,000; $82,000; $96,000; $81,500; $92,700; $87,500; $91,250 and $93,500. Calculate the current value of Margret’s pension at 6.5% return based on her life expectancy.

Question 3 ( number 18 test 2)

Gary’s annual earnings in 2015 is $2,440. How many quarters of Social Security coverage will he earn in 2015?

Question 4 (6, or 8 on test 1)

Thomas currently earns $78,000 per year and wants to replace 80% of his annual income at the beginning of each year during retirement. He expects to receive $17,000 in today’s dollar terms from Social Security at the the beginning of each year during retirement. Thomas is currently 32, wants to retire at 67 and expects to live till 88. Assume that Thomas can earn 9.5% return on his investments and inflation to be 3.5%. Thomas expects his salary to increase with inflation every year. Based on Purchasing power Preservation Model, approximately how much he should save at the end of every month to accumulate the capital needed at 67?

Question 5 number 20 on test 1

Thomas currently earns $78,000 per year and wants to replace 80% of his annual income at the beginning of each year during retirement. He expects to receive $17,000 in today’s dollar terms from Social Security at the the beginning of each year during retirement. Thomas is currently 32, wants to retire at 67 and expects to live till 88. Assume that Thomas can earn 9.5% return on his investments and inflation to be 3.5%. Thomas expects his salary to increase with inflation every year. Calculate the amount he should save at the end of every month to accumulate the capital needed at 67? Assume Thomas presently has $50,000 in current retirement savings.

Question 6 test 1 problem 10)

Kevin expects that he would need $82,000 at the beginning of the first year of retirement. During that time he expects to receive $14,500 per year from Social Security. What should be the balance in his retirement account at the beginning of retirement to support his post retirement period of 25 years. Assume expected return to be 7.5% and 2.5% inflation during the post retirement period.

Question 7 (Test 1 question 9)

Maria who has just retired wants her retirement fund to last for 28 years. What % of retirement fund should she withdraw at the beginning of the 1st year of retirement and increase by inflation during the subsequent years such that the funds can last for 28 years? Assume expected return and inflation to be 7% and 2.5% respectively?

Question 8 (Test 2 Question 11)

Margret has worked in a firm for the last 34 years where she has participated in Defined Benefit Plan. This Defined Benefit Plan uses Unit Credit Formula to compute monthly benefit based on 1.98% of average of three highest salaries multiplied by number of years of services. The ten highest annual salaries for Margret are: $78,000; $83,000; $77,000; $82,000; $96,000; $81,500; $92,700; $87,500; $91,250 and $93,500. Calculate the maximum death benefits (based on 100 to 1 Ratio test) under Term Life Insurance policy which this retirement plan can purchase for Margret?

Question 9 (question 14 test 2)

John, age 57 and Cindy, age 54 are married and file income tax jointly. John earns an annual salary of $135,000 in 2014 from his employment while Cindy is unemployed. John is active particpant in his employer’s retirement account. They both make maximum contributions to their traditional IRA accounts. How much will be tax savings due to Cindy’s contributions if they are in marginal tax rate of 33%?

Question 10 (Test 2 question 3)

A company contributes 9.5% of total compensation into Profit Sharing Plans on the basis of Age Weighted Plan. It uses 7.75% as interest factor and pays the following compensation to its three employees: Elizabeth (age 52): $145,000; Santiago (age 39): $115,000 and Jennifer (age 30): $45,000. The retirement age for these employees is 67 years. Calculate employer’s contributions for Santiago.

Question 11 (Test 2 question 19)

Nick is expected to receive full social security retirement benefit of $1325 per month when he turns 67. He has an option to delay his retirement till age 70 and get increased benefits. Should Nick take full benefit at 67 or delay benefit at age 68 if his life expectancy is 88 years and can earn 6.5% return on investments? Assume no other income and taxes during retirement.

Question 12 (test 2 numbers maybe 3,2,8)

A company follows Permitted Disparity Allocations in Profit Sharing Plans and contributes at a base rate of 8%. What % of Rich’s compensation does his employer contribute in retirement account if Rich’s annual compensation is $132,000 in the year 2015?

Question 13 (Test 1 question 19)

Karen, age 27 saves 5% of her annual income of $55,000 at the end of every year for her retirement. The current balance in her retirement accounts $70,000. She expects to retire at age 67 with a wage replacement ratio of 80%. She will need income at the beginning of each year during the post retirement period. How long her retirement fund is expected to last if expected return and inflation are 7% and 2% respectively? Assume that her salary is going to increase with inflation till retirement.

Question 14 (Test 1 question 16)

Cathy who is currently 25 expects to retire at age 67 and to live until age 90. She currently has $25,000 in her retirement account. She expects to earn 7.5% before retirement and 5.5% during the post retirement period. If she does not make any additional contribution to her retirement fund, how much annuity at the beginning of each month will she receive during retirement years?

Question 15 (Test 2 question 15)

Jenny age, 55 wants to convert $18,000 balance in her traditional IRA account into Roth IRA after paying necessary taxes. In addition, she plans to deposit $5000 (post tax) into Roth IRA. Jenny wants to withdraw funds from Roth IRA after 3 years to pay for her son’s college tution. How much can she withdraw from Roth IRA after 3 years (when she is 58)? Assume expected return of 10% and marginal tax rate of 28%.

Question 16 (Test 1 question 19)

John has just retired and want to follow 4% approach to retirement distribution at the beginning of every year. If expected return and inflation are 5% and 3.5% respectively, how many years his retirement fund will last?

Question 17 (Test 2 question 6)

A person at retirement is expected to receive a fully taxable Lump-Sum distribution of $245,000. What will be the effective tax rate on this distribution based on 10 year Forwarding Average rate? Use 1986 Income Tax Rate Table for Ten Year Averaging Calculation.

Question 18 (Test 1 question 7)

Compute the total payroll taxes paid by employer and employee combined if employee earns a salary of $125,000 during 2014?

Question 19 (Test 2 question 19)

Silvia is expected to receive full social security retirement benefit of $1525 per month when she turns 67. She can take early retirement with reduced benefits starting from age 62. She will have no other income and taxes once she retires. Should Silvia take early retirement at age 63 or full benefit at age 67? Assume expected return to be 9.5% and life expectancy of 88 years.

Question 20 ( test 1 question 19)

Karla, age 37 saves 6% of her monthly income of $7,000 at the end of every month for her retirement. The current balance in her retirement account is $55,000. She expects to retire at age 67 and her life expectancy is 88 years. What will be the accumulated value of her savings at the time her retirement? Assume expected return and inflation to be 8% and 2% respectively?

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