and III. Assumptions: - Assume that currently (at t=0 ), you are 25 years old and just started earning money. - Assume you retire at age 65(t=40) - Assume you live until you are 90(t=65; always plan for a bit longer than your statistical life expectancy!) - We will neglect taxes for the purpose of this assignment - Discount \& Interest rate =7.5% Part I: Forecasting your retirement budget ( 20 points) Make a table that forecasts the following expenses for every year during retirement. The more research you put into it, the more useful this assignment is to you (e.g. Google average rent in Florida). Briefly explain how you came up with your numbers, e.g. with national averages. Otherwise, you do not need to justify anything; please do not share personal information. - Living : Note that even if you plan to own a house by age 65 , you will need to budget for repairs, gas, electricity, furniture, phone, internet, etc. - Food - Transportation - Vacation - Insurances (esp. health insurance) - Health expenses - Hobbies / Other Part II: Calculate how much to save every year until retirement (10 points) - There are several ways of doing this. My suggestion: - First, calculate the PV as of t=40, or age 65 of your expenses. If you forecasted your expenses to stay constant over the years, you can simply use a PV(annuity) here. - This is amount you need at t=40 - Use this as the FV in the next step - Calculate the savings needed every year by solving an annuity for C (by hand or Excel) - Use the FV(Annuity) formula and plug in the number you got in the first part for FV. Remember you are saving for 40 years and r=0.075. and III. Assumptions: - Assume that currently (at t=0 ), you are 25 years old and just started earning money. - Assume you retire at age 65(t=40) - Assume you live until you are 90(t=65; always plan for a bit longer than your statistical life expectancy!) - We will neglect taxes for the purpose of this assignment - Discount \& Interest rate =7.5% Part I: Forecasting your retirement budget ( 20 points) Make a table that forecasts the following expenses for every year during retirement. The more research you put into it, the more useful this assignment is to you (e.g. Google average rent in Florida). Briefly explain how you came up with your numbers, e.g. with national averages. Otherwise, you do not need to justify anything; please do not share personal information. - Living : Note that even if you plan to own a house by age 65 , you will need to budget for repairs, gas, electricity, furniture, phone, internet, etc. - Food - Transportation - Vacation - Insurances (esp. health insurance) - Health expenses - Hobbies / Other Part II: Calculate how much to save every year until retirement (10 points) - There are several ways of doing this. My suggestion: - First, calculate the PV as of t=40, or age 65 of your expenses. If you forecasted your expenses to stay constant over the years, you can simply use a PV(annuity) here. - This is amount you need at t=40 - Use this as the FV in the next step - Calculate the savings needed every year by solving an annuity for C (by hand or Excel) - Use the FV(Annuity) formula and plug in the number you got in the first part for FV. Remember you are saving for 40 years and r=0.075
