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Case Study #2 Answers

Calculations

Are they on track? You can’t tell until you calculate their ratios

Current Salary Savings Debt
Age 45 $82,000 $115,000 $150,000

 

Ratios Current Recommended
Savings ratio 1.40 ($115/82) > 3.0
Debt ratio 1.83 ($150/82) < 1.0

 

Application:

They are way behind on their savings and debt goals for retirement. They need to increase their savings to a minimum of 20 percent.

  • They have too little savings and too much debt.
  • They need to save an even bigger percentage of their salary (I suggest 20 percent).
  • They need to work harder if retirement is really a goal.
  • They may need to sell assets to reduce debt.
  • They may need to downsize.
  • They need to begin saving a larger percentage of their income!

As another tool, you can look at Learning Tool 25—Retirement Planning Forecasts Ratios which may be useful given different financial situations and goals.

 



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