Determine how much you need to save each month in order to reach your retirement savings goal.

Starting salary $63,619

Goal is save $500,000 by retirement

To make this assignment more straightforward and less complicated there are several assumptions you must make and adhere to. These assumptions are:

You have never worked before and have no existing retirement savings

You will graduate today and begin working in your career this year (2017)

You plan to retire at full retirement age, 67 years old

You will live 25 years in retirement

The current compounding rate for your retirement savings is 8% with monthly compounding (m=12)

During retirement the appropriate discount rate of return is 4%

Inflation rate is 3.0%

You will need 80% of your annual pre-retirement salary each year to live off of during retirement. This means if your pre-retirement salary is $100,000, you will need $80,000 (80%*100,000) to live off of each year for 25 years.

Questions to address:

What is your major (i.e., field of study)? And what is the starting salary according to the required website? (2 points)

How many years until you retire, assuming you enter the workforce for the first time? (2 points)

Assume that you will begin your new job tomorrow. If you obtain a job paying your quoted starting salary and your pay increases at the rate of inflation how much will your salary be at the time of your retirement (hint: you are finding the future value of a single cash flow). This value is your annual pre-retirement salary. (5 points)

Is assumed that you will need 80% of your pre-retirement income each year to support you during retirement. How much will you need annually to support you during retirement (hint: think, does this cash flow represent a single cash flow or an annuitya repeated level cash flow?) (2 points)

How much money will you need AT retirement to support your income needs through retirement (hint: this is a present value of an annuity problem)? This value is your retirement savings goal. (5 points)

How much money will you need to save each month from now to retirement in order to achieve your retirement savings goal? (hint: keep in mind that your retirement savings today is $0.00) (10 points)

In your responses identify the four time value of money components that you know; identify the fifth component you are solving for with CPT; write a sentence or two identifying for what you have solved. For example:

If I were trying to determine how much I should pay for a car (PV) given that I can afford a $300 a month car payment (PMT) and received an interest rate of 1.9% (I) for a five-year loan (N) from the car dealership.