A young couple planning ahead for their retirement has decided that $3 million is the amount they will need in order to retire comfortably 20 years from now. For the past 5 years, they have been able to invest one of their salaries ($50,000 per year, which includes employer contributions) while living off the other salary. They plan to start a family sometime in the next 10 years and when they will have their first child, one of the parents will quit working, causing the savings to decrease to $10,000 per year thereafter. If they have realized an average ROR of 10% per year on their investments, and expect to continue at this ROR, is reaching their goal of $3 million in 20 years sensitive to when they have their first child (i.e., between now and 10 years from now)? If so, how many years from now will they have to wait before they have their first child? Use a future worth analysis.
A young couple planning ahead for their retirement
has decided that $3 million is the amount
they will need in order to retire comfortably 20
years from now. For the past 5 years, they have
been able to invest one of their salaries ($50,000
per year, which includes employer contributions)
while living off the other salary. They plan to start
a family sometime in the next 10 years and when
they will have their first child, one of the parents
will quit working, causing the savings to decrease
to $10,000 per year thereafter. If they have realized
an average ROR of 10% per year on their investments,
and expect to continue at this ROR, is
reaching their goal of $3 million in 20 years sensitive
to when they have their first child (i.e., between
now and 10 years from now)? If so, how
many years from now will they have to wait before
they have their first child? Use a future worth
analysis.
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