Homework $1$: Retirement Planning

$1.$ According to the Seton Hall Career Center, finance majors from the Stillman School of Business earned an average salary of approximately $$60,000$ in their first year after graduation. Assume that this will be your salary after graduation. If you earn a $3\%$ raise, what will be your salary the second year on the job? What will be your salary in the fifth year?

$2.$ Assume you start working when you are $20$ years old and work through age $65($i$.$e$.,$ you work until the day before you turn $66).$ What will be your $45$th and final salary?

$3.$ According to financial planners, the average retiree requires approximately $70\%$ of their last year$$s working salary each year to live comfortably in retirement. Assume that you want to earn a fixed amount of interest each year in retirement. Your goal is to spend only the interest and still live comfortably; thus, you will be able to spend the same amount of money each year forever. Assume you retire at age $66$ and can earn a $6\%$ return on your retirement savings. How much must you have saved to live only off the interest?

$4.$ Suppose you live through age $90.$ How much money will you be able to bequeath $($i$.$e$.$ pass on in your will$)?$

$5.$ Suppose instead, you plan to spend all your savings in retirement $($i$.$e$.$ the day before you turn $91,$ you expect to have run out of money$).$

a$.$ How much will you have needed to save to live comfortably in retirement if you can earn a $6\%$ return on your savings?

b$.$ What about if you can only earn a $5\%$ return on your savings?

$6.$ Suppose instead of ensuring you have enough money to last through your lifetime, you decide to spend $$200,000$ per year in retirement. How long until you run out of money?

$7.$ Assume you plan to leave nothing when you pass away, and you can earn a $6\%$ return on your investment.

a$.$ If you start saving for retirement at age $25,$ how much will you need to save each year to meet your savings goal?

b$.$ If you start saving for retirement at age $35,$ how much will you need to save each year to meet your savings goal?

$8.$ What did you learn from this assignment?