lanning for a very early retirement ou would like to retire at age 40 and have enough money saved to be able to draw $240,000 per year for the next 40 years (based on family history, you think you'll live to age 80). You plan to save for retirement by making 20 equal annual installments (from age 20 to nvestment fund that you expect will earn 10% per year. You will leave the money in this fund until it is completely depleted when you are 30 years old. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) (Click the icon to view the present value table.) (Click the icon to view the future value table.) To make your plan work answer the following questions (Click the icon to view the questions.) 1. How much money must you accumulate by retirement? (Hint Find the present value of the $240,000 withdrawals.) Calculate the present value to find out how much money must be accumulated by retirement. (Round your answer to the nearest whole dollar) The present value is 2. How does this amount compare to the total amount you will draw out of the investment during retirement? How can these numbers be so different? Over the course of your retirement you will be withdrawing However, by age 40 you only need to have invested These numbers are different because More info 1. How much money must you accumulate by retirement? (Hint Find the present value of the $240,000 withdrawals.) 2. How does this amount compare to the total amount you will draw out of the investment during retirement? How can these numbers be so different? 3. How much must you pay into the investment each year for the first twenty years? (Hint: Your answer from Requirement 1 becomes the future value of this annuity) 4. How does the total out-of-pocket savings compare to the investment's value at the end of the 20-year savings period and the withdrawals you will make during retirement? Print A. You need to have far more accumulated than what you will withdraw because you will withdraw a large portion of the investment every year-the balance remains invested where it continues to earn 10% interest. OB. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every year-the balance remains invested where it continues to earn 10% interest. OC. You need to have the same accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement OD. None of the above. How much must you pay into the investment each year for the first twenty years? (Hint: Your answer from Requirement 1 becomes the future value of this annuity) (Round your answer to the nearest whole dollar) than the amount of money you will eventually withdraw from the investment. Done For the first twenty years, the amount you must pay into the investment each year is 1. How does the total out-of-pocket savings compare to the investments value at the end of the 20-year savings period and the withdrawals you will make during retirement? (Use the investment rounded to the nearest whole number that you calculated above, then round your final answer to the nearest whole dollar.) The total out-of-pocket savings amounts to This is far than the investment's worth at the end of twenty years and remarkably

Financial & Managerial Accounting
13th Edition
ISBN:9781285866307
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter10: Current Liabilities And Payroll
Section: Chapter Questions
Problem 10.23EX
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Question
You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to draw $240,000 per year for the next 40 years (based on family history, you think you'll live to age 80). You plan to save for retirement by making 20 equal annual installments (from age 20 to age 40) into a fairly risky
investment fund that you expect will earn 10% per year. You will leave the money in this fund until it is completely depleted when you are 80 years old.
(Click the icon to view the present value annuity table.)
(Click the icon to view the future value annuity table.)
(Click the icon to view the present value table.)
(Click the icon to view the future value table.)
To make your plan work answer the following questions:
i (Click the icon to view the questions.)
1. How much money must you accumulate by retirement? (Hint: Find the present value of the $240,000 withdrawals.)
Calculate the present value to find out how much money must be accumulated by retirement. (Round your answer to the nearest whole dollar.)
The present value is
2. How does this amount compare to the total amount you will draw out of the investment during retirement? How can these numbers be so different?
Over the course of your retirement you will be withdrawing
However, by age 40 you only need to have invested
These numbers are different because:
This is far
More info
▼than the investment's worth at the end of twenty years and remarkably
1. How much money must you accumulate by retirement? (Hint: Find the present value of the $240,000 withdrawals.)
2. How does this amount compare to the total amount you will draw out of the investment during retirement? How can
these numbers be so different?
3. How much must you pay into the investment each year for the first twenty years? (Hint: Your answer from
Requirement 1 becomes the future value of this annuity.)
4. How does the total out-of-pocket savings compare to the investment's value at the end of the 20-year savings period
and the withdrawals you will make during retirement?
O A. You need to have far more accumulated than what you will withdraw because you will withdraw a large portion of the investment every year the balance remains invested where it continues to earn 10% interest.
O B. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every year the balance remains invested where it continues to earn 10% interest.
You need to have the same accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement.
O C.
O D. None of the above.
3. How much must you pay into the investment each year for the first twenty years? (Hint: Your answer from Requirement 1 becomes the future value of this annuity.) (Round your answer to the nearest whole dollar.)
For the first twenty years, the amount you must pay into the investment each year is
4. How does the total out-of-pocket savings compare to the investment's value at the end of the 20-year savings period and the withdrawals you will make during retirement? (Use the investment rounded to the nearest whole number that you calculated above, then round your final answer to the nearest whole dollar.)
The total out-of-pocket savings amounts to
Print
than the amount of money you will eventually withdraw from the investment.
Done
Transcribed Image Text:You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to draw $240,000 per year for the next 40 years (based on family history, you think you'll live to age 80). You plan to save for retirement by making 20 equal annual installments (from age 20 to age 40) into a fairly risky investment fund that you expect will earn 10% per year. You will leave the money in this fund until it is completely depleted when you are 80 years old. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) (Click the icon to view the present value table.) (Click the icon to view the future value table.) To make your plan work answer the following questions: i (Click the icon to view the questions.) 1. How much money must you accumulate by retirement? (Hint: Find the present value of the $240,000 withdrawals.) Calculate the present value to find out how much money must be accumulated by retirement. (Round your answer to the nearest whole dollar.) The present value is 2. How does this amount compare to the total amount you will draw out of the investment during retirement? How can these numbers be so different? Over the course of your retirement you will be withdrawing However, by age 40 you only need to have invested These numbers are different because: This is far More info ▼than the investment's worth at the end of twenty years and remarkably 1. How much money must you accumulate by retirement? (Hint: Find the present value of the $240,000 withdrawals.) 2. How does this amount compare to the total amount you will draw out of the investment during retirement? How can these numbers be so different? 3. How much must you pay into the investment each year for the first twenty years? (Hint: Your answer from Requirement 1 becomes the future value of this annuity.) 4. How does the total out-of-pocket savings compare to the investment's value at the end of the 20-year savings period and the withdrawals you will make during retirement? O A. You need to have far more accumulated than what you will withdraw because you will withdraw a large portion of the investment every year the balance remains invested where it continues to earn 10% interest. O B. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every year the balance remains invested where it continues to earn 10% interest. You need to have the same accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement. O C. O D. None of the above. 3. How much must you pay into the investment each year for the first twenty years? (Hint: Your answer from Requirement 1 becomes the future value of this annuity.) (Round your answer to the nearest whole dollar.) For the first twenty years, the amount you must pay into the investment each year is 4. How does the total out-of-pocket savings compare to the investment's value at the end of the 20-year savings period and the withdrawals you will make during retirement? (Use the investment rounded to the nearest whole number that you calculated above, then round your final answer to the nearest whole dollar.) The total out-of-pocket savings amounts to Print than the amount of money you will eventually withdraw from the investment. Done
Reference
Present Value of $1
12% 14% 16% 18% 20%
Periods 1%
2% 3% 4%
Period 1 0.990 0.980 0.971 0.962
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
5% 6% 8% 10%
0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833
0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797
0.826 0.797 0.769 0.743 0.718 0.694
0.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579
0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482
0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402
0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335
0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279
Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233
Period 9 0.914 0.837 0.766 0.703 0.645 0.592 0.500
0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194
Period 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162
Period 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135
Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112
Period 13 0.879 0.773 0.681
0.681 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093
Period 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078
Period 15 0.861 0.743 0.642 0.555
0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065
Period 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026
Period 25 0.780 0.610 0.478 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010
Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004
Period 40 0.672
0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001
0.453 0.307 0.208
[0
Print
Done
Reference
Future Value of $1
Period 20
Period 25
Period 30
Period 40
4%
5%
6% 8% 10%
Periods 1% 2% 3%
12% 14% 16% 18% 20%
Period 1 1.010 1.020 1.030 1.040 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200
Period 2 1.020 1.040 1.061 1.082 1.103 1.124 1.166 1.210 1.254 1.300 1.346 1.392 1.440
Period 3 1.030 1.061 1.093 1.125 1.158 1.191 1.260 1.331 1.405 1.482 1.561 1.643 1.728
Period 4 1.041 1.082 1.126 1.170 1.216 1.262 1.360 1.464 1.574 1.689 1.811 1.939 2.074
Period 5 1.051 1.104 1.159
1.217 1.276 1.338 1.469 1.611 1.762 1.925 2.100 2.288 2.488
Period 6
1.062 1.126 1.194 1.265 1.340 1.419 1.587
1.772 1.974 2.195
2.436 2.700 2.986
Period 7 1.072 1.149 1.230 1.316 1.407 1.504 1.714 1.949 2.211 2.502 2.826 3.185 3.583
Period 8 1.083 1.172 1.267 1.369 1.477 1.594 1.851 2.144 2.476 2.853 3.278 3.759 4.300
Period 9 1.094 1.195 1.305 1.423 1.551 1.689 1.999 2.358 2.773 3.252 3.803 4.435 5.160
Period 10 1.105 1.219 1.344 1.480 1.629 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192
Period 11 1.116 1.243 1.384 1.539 1.710 1.898 2.332 2.853 3.479 4.226 5.117 6.176 7.430
Period 12 1.127 1.268 1.426 1.601 1.796 2.012
2.012 2.518 3.138 3.896 4.818 5.936 7.288 8.916
Period 13 1.138 1.294
1.469 1.665 1.886 2.133
2.133 2.720 3.452 4.363 5.492 6.886 8.599 10.699
Period 14
1.149 1.319
1.513 1.732 1.980 2.261 2.937 3.797 4.887 6.261 7.988
7.988 10.147 12.839
Period 15 1.161 1.346 1.558 1.801 2.079 2.397 3.172 4.177 5.474 7.138 9.266 11.974 15.407
1.220 1.486 1.806 2.191 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338
1.282 1.641 2.094 2.666 3.386 4.292 6.848 10.835 17.000 26.462 40.874 62.669 95.396
1.348 1.811 2.427 3.243 4.322 5.743 10.063 17.449 29.960 50.950 85.850 143.371 237.376
1.489 2.208 3.262 4.801 7.040 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1,469.772
Print
- X
Done
Reference
Present Value of Annuity of $1
Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20%
Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862
0.862 0.847 0.833
Period 2 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528
Period 3 2.941 2.884 2.829 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106
Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798
2.798 2.690 2.589
Period 5 4.853 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991
Period 6 5.795 5.601 5.417 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326
Period 7 6.728 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605
Period 8 7.652 7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837
Period 9 8.566 8.162 7.786 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031
Period 10 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192
Period 11 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327
Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197
4.793 4.439
Period 13 12.134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533
Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611
Period 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575
6.142 5.575 5.092 4.675
Period 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870
Period 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.097 5.467 4.948
Period 30 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979
Period 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6.233 5.548 4.997
Print
Done
Transcribed Image Text:Reference Present Value of $1 12% 14% 16% 18% 20% Periods 1% 2% 3% 4% Period 1 0.990 0.980 0.971 0.962 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 5% 6% 8% 10% 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.826 0.797 0.769 0.743 0.718 0.694 0.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 Period 9 0.914 0.837 0.766 0.703 0.645 0.592 0.500 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 Period 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 Period 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 Period 13 0.879 0.773 0.681 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 Period 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 Period 15 0.861 0.743 0.642 0.555 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 Period 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 Period 25 0.780 0.610 0.478 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 Period 40 0.672 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 0.453 0.307 0.208 [0 Print Done Reference Future Value of $1 Period 20 Period 25 Period 30 Period 40 4% 5% 6% 8% 10% Periods 1% 2% 3% 12% 14% 16% 18% 20% Period 1 1.010 1.020 1.030 1.040 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 Period 2 1.020 1.040 1.061 1.082 1.103 1.124 1.166 1.210 1.254 1.300 1.346 1.392 1.440 Period 3 1.030 1.061 1.093 1.125 1.158 1.191 1.260 1.331 1.405 1.482 1.561 1.643 1.728 Period 4 1.041 1.082 1.126 1.170 1.216 1.262 1.360 1.464 1.574 1.689 1.811 1.939 2.074 Period 5 1.051 1.104 1.159 1.217 1.276 1.338 1.469 1.611 1.762 1.925 2.100 2.288 2.488 Period 6 1.062 1.126 1.194 1.265 1.340 1.419 1.587 1.772 1.974 2.195 2.436 2.700 2.986 Period 7 1.072 1.149 1.230 1.316 1.407 1.504 1.714 1.949 2.211 2.502 2.826 3.185 3.583 Period 8 1.083 1.172 1.267 1.369 1.477 1.594 1.851 2.144 2.476 2.853 3.278 3.759 4.300 Period 9 1.094 1.195 1.305 1.423 1.551 1.689 1.999 2.358 2.773 3.252 3.803 4.435 5.160 Period 10 1.105 1.219 1.344 1.480 1.629 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192 Period 11 1.116 1.243 1.384 1.539 1.710 1.898 2.332 2.853 3.479 4.226 5.117 6.176 7.430 Period 12 1.127 1.268 1.426 1.601 1.796 2.012 2.012 2.518 3.138 3.896 4.818 5.936 7.288 8.916 Period 13 1.138 1.294 1.469 1.665 1.886 2.133 2.133 2.720 3.452 4.363 5.492 6.886 8.599 10.699 Period 14 1.149 1.319 1.513 1.732 1.980 2.261 2.937 3.797 4.887 6.261 7.988 7.988 10.147 12.839 Period 15 1.161 1.346 1.558 1.801 2.079 2.397 3.172 4.177 5.474 7.138 9.266 11.974 15.407 1.220 1.486 1.806 2.191 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 1.282 1.641 2.094 2.666 3.386 4.292 6.848 10.835 17.000 26.462 40.874 62.669 95.396 1.348 1.811 2.427 3.243 4.322 5.743 10.063 17.449 29.960 50.950 85.850 143.371 237.376 1.489 2.208 3.262 4.801 7.040 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1,469.772 Print - X Done Reference Present Value of Annuity of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.862 0.847 0.833 Period 2 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 Period 3 2.941 2.884 2.829 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.798 2.690 2.589 Period 5 4.853 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 Period 6 5.795 5.601 5.417 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 Period 7 6.728 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 Period 8 7.652 7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 Period 9 8.566 8.162 7.786 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 Period 10 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 Period 11 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 Period 13 12.134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 Period 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575 6.142 5.575 5.092 4.675 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 Period 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.097 5.467 4.948 Period 30 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979 Period 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6.233 5.548 4.997 Print Done
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