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BUS 6 2 2 Case Study - Week 4 Case Information: Years until retirement: 3 0 Amount to withdraw each year: $ 9 5 ,

BUS 622 Case Study - Week 4
Case Information:
Years until retirement: 30
Amount to withdraw each year: $95,000
Years to withdraw in retirement: 25
Interest rate: 8.0%
Inflation rate: 2.0%
Employer's annual contribution: $1,750
Years until trust fund distribution: 25
Amount of trust fund distribution: $28,000
In order to answer any of these questions, first we need to know how much your friend will need when she is ready to retire. Since this amount will be the same for each of the parts of the problem, solve for this amount below:
Amount needed at retirement:
1 The amount your friend must save each year to fund her retirement is:
Amount to save each year:
2 The lump sum your friend must deposit today to fund her retirement is:
Lump sum deposited today:
3 To find the amount of the annual deposit now, it is easier to break down the components of the problem. Doing so for each of the following to find your friend's annual deposit, we get:
Value of employer's contribution at retirement:
Value of trust fund at retirement:
Amount to save each year now:
4 Annual retirement payment in 31 years equal to $95,000 in today's dollars
5 Growing annuity factor for retirement period (wo r-g)
Dividing by r-g
Amount needed at retirement
6 PV now of amount needed at retirement
Growing annuity factor for working period (wo r-g)
Dividing by r-g
Amount to save each year
7 Amount needed to save this year and then increasing by 2.0% each year to reach the amount needed at retirements
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