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 $245,000 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 12​% per year. You will leave the money in this fund until it is completely depleted when you are 80 years old. LOADING... ​(Click the icon to view the present value annuity​ table.)                                             LOADING... ​(Click the icon to view the future value annuity​ table.) LOADING... ​(Click the icon to view the present value​ table.)                                                         LOADING... ​(Click the icon to view the future value​ table.)   To make your plan work answer the following​ questions: LOADING... ​(Click the icon to view the​ questions.)   1. How much money must you accumulate by​ retirement? ​(Hint​: Find the present value of the $245,000 ​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 1829905 . 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:     A. 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 12​% interest.   B. 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.   C. 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 12​% interest.   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

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter2: Using Financial Statements And Budgets
Section: Chapter Questions
Problem 6FPE
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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
$245,000
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
12​%
per year. You will leave the money in this fund until it is completely depleted when you are
80
years old.
LOADING...
​(Click
the icon to view the present value annuity​ table.)                                            
LOADING...
​(Click
the icon to view the future value annuity​ table.)
LOADING...
​(Click
the icon to view the present value​ table.)                                                        
LOADING...
​(Click
the icon to view the future value​ table.)
 
To make your plan work answer the following​ questions:
LOADING...
​(Click
the icon to view the​ questions.)
 
1. How much money must you accumulate by​ retirement?
​(Hint​:
Find the present value of the
$245,000
​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
1829905
.
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:
 
 
A.
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
12​%
interest.
 
B.
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.
 
C.
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
12​%
interest.
 
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
 
.
This is far
 
less
more
than the​ investment's worth at the end of
twenty
years and remarkably
 
higher
lower
than the amount of money you will eventually withdraw from the investment.  
 
Choose from any list or enter any number in the input fields and then continue to the next question.
 
 
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