#5 please

be so bad, assuming the are likely to have enjoyed HOUSEHOLD SAVING AND INVESTI them to put aside more costs begin, allowing them to put a loyed prepared profore the com had more years for investments morbo earnings conscan. They can avoid borrowing to meet college the parents wed the bes more than compound. In the saking the to meet college costs, takin rather than paying it on stu on in the Philadelphia retirement. In fact, the double whammy might not be prepared properly. On the plus side, older parents ar carnings years before the college costs begin, allowin younger parents can. They've also had more years ideal situation, older parents can avoid borrowing to preferred route of earning interest on investments rat (Excerpted from Jeff Brown's Personal Finan May 11, 1998.) Lohka Vrquire ish to retire at age 65. You expe ur savings over your lifetime : like to save enough money to cent income to supplement oth expect to be able Getime (both pro money to provide Assume that you are of interest on your savings over your life of others cide that the extra income at your first contribution to come se 4. Assume that you are 40 years old and wish to retir average a 6% annual rate of interest on your savin retirement and after retirement). You would like to $8.000 per year beginning at age 60 in retirement incom unity, pension plans, etc.). Suppose you decide ih be provided for only 15 years (up to age 80). Assume tha savings plan will take place one year from now. a. How much must you save each year between now an goal? b. If the rate of inflation turns out to be 6% per how much will your first $8,000 withdrawal be wort purchasing power? now and retirement to achiev. vou save each year between now and retirement 1o achieve you een now and retirement val be worth in terms of today's the following table. It shows the your retirement in orders u have not yet saved anything 5. You are saving for retirement and you come across the follow percentage of your current salary that you should with an annuity equal to 70% of your salary if you have not It assumes that your annual salary will remain constant in and that you will live for 25 years after retiring. For instance before you retire and earn 3.5% per year on your investments, 17.3% of your current salary. constant in real terms until retirem For instance, if you have 35 years les ur investments, then you should save TABLE A Saving Rate Needed to Achieve 70% Replacement Rate Real Interest Rate 15 Years to Retirement 25 35 ? 17.30% 3.5% per annum 4.5% per annum ? 2 Fill in the missing numbers in Table A. sure previous problem, now fill in Table B. It assumes that instead targeting a 70% replacement rate of preretirement income, you ! the same level of consumption spending both before and after in come, your goal is to maintain both before and after retirement TABLE B Saving to Maintain Lifetime Consumption Snor