Recall Problem 34. Shortly before Jerry got under way with his job and investment plan, he met Jennifer. All of a sudden, he decided to put the retirement plan on hold, reasoning that 40 years is a long way off. After getting married, having two kids, two cars, an upscale house, and saving absolutely $0, he realized that at age 37 he was getting very old. Fortunately, his career was on track with the raises. Also, he still liked his investment plan and decided to get started exactly 15 years behind schedule, leaving only 25 years for investment.

Recall Problem 34

Shortly after completing his MS degree in engineering, Jerry Dechert wanted to initiate a retirement plan. He decided to use a 15 percent mix of blue chip individual stocks, 50 percent mutual funds, 20 percent municipal bonds, and 15 percent CDs, investing 10 percent of his gross income using a payroll deduction plan (he correctly reasoned that if the money was never in his pocket, he would never miss it). Although he invests new money on a monthly basis, he treats all inflows and outflows as if they occurred at the end of the year. Jerry anticipates earnings of 7.5 percent per year. Starting at a salary of $60,000 and estimating annual increases of 6 percent over a 40-year working career, how much money can Jerry expect to have in the fund at that time?

a. How much money can Jerry expect to have in the fund after 25 years?

b. What additional increment of ‘‘starting money’’ would Jerry need to invest right now (1 year before his first deposit) to end up after 25 years where he would have been if he had started his investments as originally planned?

c. What lesson is to be learned from your result in part (b)?