Suppose you are planning for retirement. At thebeginning of this year and each of the next 39 years,you plan to contribute some money to your retirementfund. Each year, you plan to increase your retirement contribution by $500. When you retire in 40years, you plan to withdraw $100,000 at the beginning of each year for the next 20 years. You assumethe following about the yields of your retirementinvestment portfolio:■ During the first 20 years, your investments willearn 10% per year.■ During all other years, your investments will earn5% per year.All contributions and withdrawals occur at thebeginnings of the respective years.a. Given these assumptions, what is the least amountof money you can contribute this year and stillhave enough to make your retirement withdrawals?b. How does your answer change if inflation is 2%per year and your goal is to withdraw $100,000 peryear (in today’s dollars) for 20 years?
Suppose you are planning for retirement. At the
beginning of this year and each of the next 39 years,
you plan to contribute some money to your retirement
fund. Each year, you plan to increase your retirement contribution by $500. When you retire in 40
years, you plan to withdraw $100,000 at the beginning of each year for the next 20 years. You assume
the following about the yields of your retirement
investment portfolio:
■ During the first 20 years, your investments will
earn 10% per year.
■ During all other years, your investments will earn
5% per year.
All contributions and withdrawals occur at the
beginnings of the respective years.
a. Given these assumptions, what is the least amount
of money you can contribute this year and still
have enough to make your retirement withdrawals?
b. How does your answer change if inflation is 2%
per year and your goal is to withdraw $100,000 per
year (in today’s dollars) for 20 years?
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