Chapter 11 Question 1

Requirements 1. How much money must you accumulate by retirement to make your plan work? (Hint Find the present value of the $235,000 withdrawals.) 2. How does this amount compare to the total amount you will withdraw from the investment during retirement? How can these numbers be so different? You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to withdraw $235,000 per year for the next 30 years (based on family history, you think you will live to age 70). You plan to save by making 15 equal annual installments (from age 25 to age 40) into a fairly risky investment fund that you expect will eam 12% per year. You will leave the money in this fund until it is completely depleted when you are 70 years old. Requirement 1. How mudw money must you accumulate by retirement to make your plan work? (Hint Find the present value of the $235,000 withdrawals.) (Round your nal answer to the nearest whole dollar.) To make the plan work, you must accumulate this amount by retirement Requlrement 2. How does this amount compare to the total amount you will withde from the investment during retirement? How can these numbers be so different? Over the course of your retirement you will be withdrawing However, by age 40 you only need to have invested These numbers are different because: O A. You need to have far more accumulated than what you will withdraw because you will withdraw a large portion of the investment every yearthe balance remains invested where it continues to earn 12% interest. 0 B. You need to have the same amount accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement 0 C. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every yearthe balance remains invested where it continues to earn 12% interest. 0 D. None of the above