A news article reported that Bill Ackman, who runs Pershing Square Capital Management, recently proposed the following the government could establish and fund investment accounts for every child born in America The funds could be invested in zero cost equity index funds, be prohibited from withdrawal until retirement, and could compound tax free for 65 years At historical rates of equity returns of 8 per annum, a $6,750 at birth retirement accountwould provide retirement assets of more than $1 million at age 65 I disagree with Ackman and believe that equity returns of 8 per annum estimate is optimistic Accordingly, exactly how much would a $6,750 investment yield after 65 years at an annual rate of return of 6 I also believe, considering inflation, people would need $2 million and people will retire at the age of 70 So, how much needs to be invested (a single one time investment) to yield exactly $2 million after 65 years, assuming an annual rate of return of 6 Suppose that instead of making a single investment at birth, the government chooses to make contributions at the end of each year toward each childs retirement savings, starting 1 year after birth (65 contributions in total) Assuming an annual rate of return of 6 , how much will the government have to contribute each year per child to ensure that each child has $2 million after 65 years Suppose that the government contributes $6,750 per child at birth and that in addition, your family contributes $1,000 to your retirement savings at the end of each year after birth What annual rate of return is required for you to have $5 million after 70 years Suppose that the government only contributes $2,000 per child at birth Assuming an annual rate of return of 6 How much additional savings would be required at the end of each year after birth (constant annual contribution) for you to have $2 million after 70 years The computations above do not account for inflation Suppose the long run expected annual rate of inflation is 2 What annual rate of return would be required to achieve an 6 rate of growth in purchasing power annually Suppose that Ackmans plan works, and you have exactly $1 million available on the day you retire In retirement, you will invest more conservatively and expect to have a lower annual rate of return of 3 0 (use this rate for the questions below) How much will you be able to withdraw at the end of each year in retirement if you expect to make your last withdrawal at age 80 (i e , 15 withdrawals in total) Suppose that instead you would like to withdraw $120,000 at the end of each year in retirement How long will your retirement savings of $1 million last you

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Posted on Oct 04, 2024

A news article reported that Bill Ackman, who runs Pershing Square Capital Management, recently proposed the following: the government could establish and fund investment accounts

A news article reported that Bill Ackman, who runs Pershing Square Capital Management, recently proposed the following:

the government could establish and fund investment accounts for every child born in America. The funds could be invested in zero-cost equity index funds, be prohibited from withdrawal until retirement, and could compound tax free for 65 years. At historical rates of equity returns of 8% per annum, a $6,750 at birth retirement accountwould provide retirement assets of more than $1 million at age 65.

I disagree with Ackman and believe that equity returns of 8% per annum estimate is optimistic. Accordingly, exactly how much would a $6,750 investment yield after 65 years at an annual rate of return of 6%?

I also believe, considering inflation, people would need $2 million and people will retire at the age of 70. So, how much needs to be invested (a single one-time investment) to yield exactly $2 million after 65 years, assuming an annual rate of return of 6%?

Suppose that instead of making a single investment at birth, the government chooses to make contributions at the end of each year toward each childs retirement savings, starting 1 year after birth (65 contributions in total). Assuming an annual rate of return of 6%, how much will the government have to contribute each year per child to ensure that each child has $2 million after 65 years?

Suppose that the government contributes $6,750 per child at birth and that in addition, your family contributes $1,000 to your retirement savings at the end of each year after birth. What annual rate of return is required for you to have $5 million after 70 years?

Suppose that the government only contributes $2,000 per child at birth. Assuming an annual rate of return of 6%. How much additional savings would be required at the end of each year after birth (constant annual contribution) for you to have $2 million after 70 years?

The computations above do not account for inflation. Suppose the long-run expected annual rate of inflation is 2%. What annual rate of return would be required to achieve an 6% rate of growth in purchasing power annually?

Suppose that Ackmans plan works, and you have exactly $1 million available on the day you retire. In retirement, you will invest more conservatively and expect to have a lower annual rate of return of 3.0% (use this rate for the questions below).

How much will you be able to withdraw at the end of each year in retirement if you expect to make your last withdrawal at age 80 (i.e., 15 withdrawals in total)?

Suppose that instead you would like to withdraw $120,000 at the end of each year in retirement. How long will your retirement savings of $1 million last you?