Question
Assume you will start working as soon as you graduate from college. You plan to start saving for your retirement on your 25th birthday and
Assume you will start working as soon as you graduate from college. You plan to start saving for your retirement on your 25th birthday and retire on your 65th birthday. After retirement, you expect to live at least until you are 85. You wish to be able to withdraw $38,000 (in today's dollars) every year from the time of your retirement until you are 85 years old (i.e., for 20 years). The average inflation rate is likely to be 5 percent.
a. Calculate the lump sum you need to have accumulated at age 65 to be able to draw the desired income. Assume that your return on the portfolio investment is likely to be 10 percent. $4,135432.44
b. What is the dollar amount you need to invest every year, starting at age 26 and ending at age 65 (i.e., for 40 years) to reach the target lump sum at age 65?
c. Now answerquestionsa and bassumingyour rate of return to be8%percentperyear,andthen 15%percentperyear.
d.Now assume you startinvestingfor your retirementwhenyouturn 30years old andanalyzethesituation underrate of returnassumptionsof(i) 8% percent, (ii) 10% percent,and(iii) 15%percent.
e. Repeattheanalysis by assumingthat you startinvesting only whenyou are35years old.
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