David is a client at your firm and you are asked to work with David. Today is Davids 22^nd birthday. David is single, has a $50,000 annual household income, and currently has no current retirement savings. David wants you to complete a retirement analysis for him and to exclude social security in the analysis. David plans to retire on his 67^thbirthday and plans to live to his 90^th birthday. In retirement David plans to withdraw $40,000 annually from his personal retirement account.

Assume the following for Davids personal retirement account: (i) his first contribution will be on his 23^rdbirthday and his last contribution will be on his 67^th birthday; (ii) his first withdrawal will be on his 67^thbirthday and his last withdrawal will be on his 90^th birthday; (iii) his account will earn an 7 percent annual rate of return before retirement; (iv) his retirement account will earn a 6 percent annual rate of return during retirement; and (v) he will make contributions and withdrawals annually (not monthly).

1. David is thinking of having lots of fun while he is young in which case he would delay making contributions to his retirement account for ten years. You need to explain to David how much he would need to contribute each year to his retirement account if he delays making contributions for ten years. Assume all the contributions will be the same amount or equal payments.

Draw a time line with all the appropriate information. Your time line must show only numbers unless it is an unknown variable in which case you can show it as a question mark (?).

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Use a financial calculator box (FCB) to solve your timeline above. How much must David save each year?

Enter
	N	I/Y	PV	PMT	FV
Solve for