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a. How much will they need to save each year to meet their retirement goal? They will make their first payment today. b. If they wait until age 40, how much will they need to save each year? C. Assume they will save $3,000 per year, how long will they be able to live off of their retirement savings before having to move in with their children?

a. How much will they need to save each year to meet their retirement goal? They will make their first payment today. b. If they wait until age 40, how much will they need to save each year? C. Assume they will save $3,000 per year, how long will they be able to live off of their retirement savings before having to move in with their children?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 10P
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Aa.68.

 

Flo and Joe Bagadonuts are planning their retirement. They are both 35 years old and plan to retire at 65. Their income is currently $55,000 per year. They expect their income to grow at 2% per year until they retire. They want their annual retirement income to be 80% of their household income at the time they retire. Assume they will need 25 years of retirement income, they will put their savings into a value-oriented equity mutual fund earning 8% per year. At retirement they will switch their savings to a balanced income fund which will earn 6 percent. a. How much will they need to save each year to meet their retirement goal? They will make their first payment today. b. If they wait until age 40, how much will they need to save each year? C. Assume they will save $3,000 per year, how long will they be able to live off of their retirement savings before having to move in with their children?
Transcribed Image Text:Flo and Joe Bagadonuts are planning their retirement. They are both 35 years old and plan to retire at 65. Their income is currently $55,000 per year. They expect their income to grow at 2% per year until they retire. They want their annual retirement income to be 80% of their household income at the time they retire. Assume they will need 25 years of retirement income, they will put their savings into a value-oriented equity mutual fund earning 8% per year. At retirement they will switch their savings to a balanced income fund which will earn 6 percent. a. How much will they need to save each year to meet their retirement goal? They will make their first payment today. b. If they wait until age 40, how much will they need to save each year? C. Assume they will save $3,000 per year, how long will they be able to live off of their retirement savings before having to move in with their children?
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