Question
1.Joe Smith has decided to start to save for retirement.He is 25 years old and he expects to retire in 35 years.He has calculated that
1.Joe Smith has decided to start to save for retirement.He is 25 years old and he expects to retire in 35 years.He has calculated that if he were to retire today his annual living expenses would be $65,000.He expects inflation to average 2.5% a year and that he will start withdrawing the money immediately the day he retires (on an annual basis and adjusted for inflation each year after the initial withdrawal).He expects to live until he is 85 and his financial planner has offered him a product that will produce a 10% nominal return that compounds quarterly.He has decided to start contributing to his account today and that he will make equal payments for the next 34 years (starting today and on an annual basis).How much money does he need to put away each year to reach his goal?How does your answer change if he decides that when he dies (assume age 85) he wishes to leave $100,000 to his kids?HINT: Use a real rate of return for your annuity in retirement.Show schedule to verify numbers!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started