Planning for Retirement

By: Miya Johansen and Madison Facemyer

Introduction:​ ​In this project we are going to research how well Americans
today are saving. We will see how income, education, and age affect how well a
person can save. Our next step is to analyse three different savings plans, show
their end savings, and how much interest they earned. We are going to take this
same idea but apply it to ourselves and see how much we will earn by the time we
retire. Even if the money we earn isn’t enough to retire, we will also be looking at
other ways to save and their benefits and drawbacks.

How well are Americans saving: ​According to the article we found by

Anna Bahney titled ​Americans are saving (a little) more, ​the amount of Americans
who have saved enough for six months of expenses is up to 31% compared to last
years 28% and 2015 22%. The economic recession the American people are facing
is one of the contributing factors to these higher saving statistics; this trend of
saving during recession is similar to Americans who lived through the Great
Depression. During this recession it’s seen that young people have a solid six
month savings plan, considering that they do have a lower living cost, while
middle class adults are more likely to have a six month savings plan if they have a
high income and more education. So over the last few years Americans saving
trends have been improving. However, a quarter of Americans have no savings so
there is still some room for improvement.

Savings Plan Problems: ​Sarah started saving at age 30. She wanted to retire
at age 65. So with her plan to save $250 a month with an APR of 1.85%, this is
what her account will be worth over her 35 years (65-30=35) of saving:
 Planning for Retirement
By: Miya Johansen and Madison Facemyer

Sarah’s account will be worth $147,536.02​ ​over her 35 years of saving. With her
APR at a rate of 1.85%, she got an extra $42,536 after all those years of saving.

Josh started saving at the age of 20 and had the same plan to retire at the age of 65
and save $250 a month. He also had an APR of 1.85%. This is what his account
will be worth after his 45 years (65-20=45) of saving:

Josh’s account will be worth $210,420 over his 45 years of saving. With an APR at
a rate of 1.85% as well, he got an extra $75,420 after those years of saving.

Beth had the same APR of 1.85% and deposited $250 a month as well, but she
didn’t start saving until she was 40. This is what her account will be worth after her
25 years (65-40=25) of saving:

Beth’s account will be worth $95,2600 after her 25 years of saving. With the APR
of 1.85%, she got and extra $20,266 after all those years of savings.
 Planning for Retirement
By: Miya Johansen and Madison Facemyer

Our possible interest:

Miya (18 years old): I can save 300$/month and I plan to retire at age 50.
Madison (17 years old): I can save 150$/month and I plan to retire at age 60.
(we are both working off of an APR of 1.55%)

Miya’s savings:

Madison’s savings:

Miya’s income/year:

Madison’s income/year:

Miya’s interest:
 Planning for Retirement
By: Miya Johansen and Madison Facemyer

Madison’s interest:

Could we live off of the interest when we retire? No. Living off of interest is a very
rare thing in our society. It’s even harder to retire comfortably as you would need
to save almost 1 million dollars. That’s almost five times what we earn which is
honestly a very unrealistic goal. But could we reach that goal if we had a higher
APR?

Miya’s savings at a 2.75% interest:

Madison’s savings at 2.75% interest:

Miya’s income:

Madison’s income:

Miyas interest: $5,135

Madison’s interest: $4,116
 Planning for Retirement
By: Miya Johansen and Madison Facemyer

So, if we increased our APR from a 1.55% to a 2.75%, we would earn more but we
still could not live off of interest alone. But what would our interest be worth in
today's dollars? (considering a 2.5% annual inflation)

Miya’s interest worth (in today's dollars):

Madison’s interest worth (in today's dollars):

Our final question is to see how much we would need to save per month to earn
$30,000 income (in today's dollars).

2,373,562/((1+ .0275/12)^(12*32) -1)/ .0275/12

PMT= $3,861
 Planning for Retirement
By: Miya Johansen and Madison Facemyer

We both agree this number is unrealistic.

Other ways to save: ​One of the most frequent ways people retire is through
Social Security. Social Security is a government system that provides assistance to
those with little to no income. One pro of Social Security is that if you work while
on Social Security you will earn more benefits. However, if you earn more than a
certain amount, you can be taxed on your Social Security benefits. Another way to
save is through buying stocks. Stocks are a very risky territory to enter when it
comes to retirement. Relying on stocks can backfire if the company or market
crash, causing the cash flow to halt or decrease. 401k plans are similar to savings
plans but they offer pre taxed money. Even when you retire and that money begins
to be taxed the taxes are usually much lower by this time. However they don't have
the fluidity of a savings plan. Taking out money before you retire can come with
some heavy fees.

Summary:​ ​Saving for retirement is a long process. It’s obvious that those who
have a stable income and multiple sources of savings will have an easier time
retiring than those who do not.We found that Americans are doing better at saving
this year that they were in the past two years.We observed that Americans who
lived through the great depression felt a similar recession as the Americans today
and that younger people and middle class people both have a six month savings
plan and that the middle class people were more likely to have a savings plan if
their income and education was higher. With the “Savings Plan Problem” we were
able to calculate how much each Sarah, Josh, and Beth had saved over the amount
of years until their retirement at 65 years old. We were then also able to calculate
how much interest they had gotten out of their savings. We felt that the best way to
save is by starting a monthly savings plan with a realistic number and having a
backup source such as a 401 k incase your savings doesn't earn you enough. It was
incredibly frustrating to discover that we most likely won't retire when we would
like to, but it was great information to find out early on so that now we know what
to expect.
Bibliography:
 Planning for Retirement
By: Miya Johansen and Madison Facemyer

● Bahney, Anna, ​Americans are saving (a little) more, ​June 20, 2017, 1 page
● Adams, Laura, ​7 Pros and Cons of Investing in a 401k Retirement plan at
work, ​January 14, 2015, 1 page
● Financial Engines, ​Working in retirement, ​July 8, 2014, 1 page
● Sightings, Tom, ​The Pros and Cons of Dividend Stocks, ​April 8, 2014, 1
page