Assume that you are 30 years old today (t=0), and that you plan to retire at age of 65 (t=35). Your annual salary is $65,000 in the coming year (t=1), and you expect your salary to increase at a rate of 5 percent annually as long as you work. You have two financial goals for your retirement. First, you expect to spend 48,000 per year for 20 years after your retirement. The first expense will be one year after retirement (t=36). Second, you expect to leave $2,000,000 to your daughter on your 80th Birthday (t=50). To save for your retirement, you plan to make annual contributions to a retirement account. Your first contribution will be made on your 31st birthday (t=1) and will be a fixed percentage of this year’s salary. Likewise, you expect to deposit a fixed percentage of your salary each year until you reach age of 65 (t=35). Assume that the interest rate is 10 percent. Also assume incomes and expenses occur at the end of each year unless specified differently a) What is the future value at retirement (t=35) of your savings? b) To support your retirement life (fulfilling two retirement financial goals), at least what percentage of your salary must you save each year?
Assume that you are 30 years old today (t=0), and that you plan to retire at age of 65 (t=35). Your annual salary is $65,000 in the coming year (t=1), and you expect your salary to increase at a rate of 5 percent annually as long as you work. You have two financial goals for your retirement. First, you expect to spend 48,000 per year for 20 years after your retirement. The first expense will be one year after retirement (t=36). Second, you expect to leave $2,000,000 to your daughter on your 80th Birthday (t=50). To save for your retirement, you plan to make annual contributions to a retirement account. Your first contribution will be made on your 31st birthday (t=1) and will be a fixed percentage of this year’s salary. Likewise, you expect to deposit a fixed percentage of your salary each year until you reach age of 65 (t=35). Assume that the interest rate is 10 percent. Also assume incomes and expenses occur at the end of each year unless specified differently
a) What is the
b) To support your retirement life (fulfilling two retirement financial goals), at least what percentage of your salary must you save each year?
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