Question
By the end of each year, you contribute an equal amount of $3,000 to your retirement fund portfolio, which on average earns an annual return
By the end of each year, you contribute an equal amount of $3,000 to your retirement fund portfolio, which on average earns an annual return of 12.5%. The contribution continues until your retirement.
(a) 30 years later you retire, how much money do you have in your portfolio by then?
(b) For your post-retirement life (which last approximately another 20 years), every year you withdraw and spend an equal amount of annuity payment from your trust fund account. What would be the annual payment amount you receive if you plan to leave no money to your heirs?
(c) Considering the long-term inflation rate amounts to 3.5% annually, how much money at real purchasing power will you actually have when you retire? How much should you withdraw and spend per year at real purchasing power for your post-retirement life? (Hints: Your “annual return of 12.5%” is just “nominal as stated” in this case, but the annual real return will be less than the given nominal return with the annual inflation being adjusted for. For example, your boss gives you an annual salary raise of 3%, but how much real-purchasing-power “raise” you are getting per year actually, if there is an annual inflation eating up your money growth?)
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Solution Formulae Formulae as above A B 71314 Equal Annual contribution 71315 Annua...Get Instant Access to Expert-Tailored Solutions
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