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Consumption-Savings Plan Exercise
Assume Jacob is 30 years old and has 40 more years to work. Currently he doesn’t have any savings. His annual income in real terms is $60,000.
Assuming a life expectancy of 90 years, real interest rate throughout of 4% and desired retirement income of 70% of pre-retirement income, prepare a lifetime consumption-savings schedule for Jacob. Specifically calculate the following and then show excel schedule showing lifetime plan.
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- Funding a retirement goal. Austin Miller wishes to have 800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today. a. If upon retirement in 20 years, Austin plans to invest 800,000 in a fund that earns 4 percent, what is the maximum annual withdrawal he can make over the following 15 years? b. How much would Austin need to have on deposit at retirement in order to withdraw 35,000 annually over the 15 years if the retirement fund earns 4 percent? c. To achieve his annual withdrawal goal of 35,000 calculated in part b, how much more than the amount calculated in part a must Austin deposit today in an investment earning 4 percent annual interest?TIME VALUE OF MONEY Mary and Hael plan to retire at age 60 with a retirement income of $48,000 a year from their savings. Rather than pay themselves the whole amount at the beginning of each year, they have decided that payment at the beginning of each quarter of $12,000 gives them the right balance of flexibility and maximized interest earnings. They feel they can safely earn an interest rate of 7.5%, compounded quarterly, on their money and they are budgeting based on the prediction that they will live until they are 90 years old. Now that Mary and Hael have their saving goal calculated, and rounded up to the nearest dollar, they want to start budgeting to reach that goal. They are 40 years old currently, so they have just 20 years to save up the total they calculated they would require so that they can still reach their goal of retirement by age 60. If they assume the same interest rate, and make deposits into their savings at the beginning of every month, how much would their…TIME VALUE OF MONEY CAL Mary and Leroy plan to retire at age 60 with a retirement income of $48,000 a year from their savings. Rather than pay themselves the whole amount at the beginning of each year, they have decided that payment at the beginning of each quarter of $12,000 gives them the right balance of flexibility and maximized interest earnings. They feel they can safely earn an interest rate of 7.5%, compounded quarterly, on their money and they are budgeting based on the prediction that they will live until they are 90 years old. How much money will they have to have saved by the time they are 60 in order to reach their retirement goal? If they do live the full 30 years, and spend their full quarterly budget, how much money in total will they have lived on/spent in their retirement? How much will have been earned in interest?
- Financial analysts recommend investing 15% to 20% of your annual income in your retirement fund to reach a replacement rate of 70% of your income by age 65. This recommendation increases to almost 30% if you start investing at 45 years old. Mallori Rouse is 29 years old and has started investing $5,200 at the end of each year in her retirement account. How much will her account be worth in 20 years at 11% interest compounded annually? How much will it be worth in 30 years? What about at 40 years? How much will it be worth in 50 years? (Please use the following provided Table 13.1.)Using the Time Value of Money for Retirement Planning. Carla Lopez deposits $3,400 a year into her retirement account. If these funds have an average earning of 9 percent over the 40 years until her retirement, what will be the value of her retirement account?1. Retirement Planning. A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last about 25 years. They believe that they can earn 8 percent interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year.b. How would the answer to part (a) change if the couple also realizes that in 20 years, they will need to spend $60,000 on their child’s college education?
- time valaue of money calculations Ishan and Hazel plan to retire at age 60 with a retirement income of $48,000 a year from their savings. Rather than pay themselves the whole amount at the beginning of each year, they have decided that payment at the beginning of each quarter of $12,000 gives them the right balance of flexibility and maximized interest earnings. They feel they can safely earn an interest rate of 7.5%, compounded quarterly, on their money and they are budgeting based on the prediction that they will live until they are 90 years old. How much money will they have to have saved by the time they are 60 in order to reach their retirement goal? If they do live the full 30 years, and spend their full quarterly budget, how much money in total will they have lived on/spent in their retirement? How much will have been earned in interest? If they saved the same total amount of their own money, but no interest earned over the years whatsoever, how much would be…Final Question: You want to start saving for your retirement now. You plan on retiring at 60. Solve the following problems. How much do you need to set aside from your current birthday, till the age of 60, in order to have saved $1 million dollars in an RRSP. Assume you are setting aside an equal payment every two weeks, with a return of 8.5% on the investment. Now that you have retired, you are going to convert the RRSP to a RIF (registered income fund) that will pay out on a regular basis, replacing the pay cheque you no longer will receive. Assume your RIF gives you a monthly payment with the annual interest rate now at a conservative 5%. Assume you want your RIF to run out on your 95th birthday, the day you die... I know, morbid right! Show complete solutions. please provide full detailed answers and please dont use AlWe are considering the effects of starting early or late to save for retirement. Assume that each account considered has an APR of 6% compounded monthly. Following expert advice, you begin your retirement program as soon as you graduate from college at age 32. You plan to retire at the age of 65. What monthly contributions do you need to make to have a retirement account worth $1,000,000? (Round your answer to the nearest cent.) $ What will your total personal contribution be by the time you retire if you start saving after graduation? $ Against expert advice, you begin your retirement program at age 49. You plan to retire at the age of 65. What monthly contributions do you need to make to have a retirement account worth $1,000,000? (Round your answer to the nearest cent.) $ What will your total personal contribution be by the time you retire if you start saving at age 49? $ How much more will you personally contribute by the time you retire if you start saving at age 49…
- Finding the Required Interest Rate * please show formula and steps. Problem: Your parents will retire in 19 years. They currently have $350,000 saved, and they think they will need $800,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they do not save any additional funds?Retirement Problem You plan to retire in 30 years. You will receive an inheritance of $200,000 in 25 years. You think you will want $50,000 per year when you retire for 30 years (the first withdrawal will come one year after you retire). You will begin saving an amount to meet your retirement goals one year from today. Required: If you think you can make 9 percent on your investments, how much will you need to save each year for the next 30 years to meet your retirement goals? PV of $500,000 gift (to be given in 50 years) in 30 years = $89,215.44 PV of annuity of $50,000 in 30 years to be received from the age of 60 = 2165.49Brenda plans to reduce her spending by $90 a month. Calculate the future value of this increase in savings over the next 18 years. (Assume an annual deposit to her savings account, and an annual interest rate of 8 percent.) a.) $44,605.08 b.) $36,718.92 c.) $10,121.76 d.) $77,682.24 e.) $40,446.00
