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John Adams is the CEO of a nursing home in San Jose. He is now 50 years old and plans to retire in ten years.
| John Adams is the CEO of a nursing home in San Jose. He is now 50 years old and plans to retire in ten | |||||||||
| years. He expects to live for 25 years after he retiresthat is, until he is 85. He wants a fixed retirement | |||||||||
| income that has the same purchasing power at the time he retires as $95,000 has today (he realizes that | |||||||||
| the real value of his retirement income will decline year by year after he retires). His retirement income | |||||||||
| will begin on the day he retires, ten years from today, and he will then get 24 additional annual payments. | |||||||||
| Inflation is expected to be 3 percent per year for ten years (ignore inflation after John retires); he | |||||||||
| currently has $1 million in his IRA, and he expects to earn an annual rate of return on his investments of | |||||||||
| 5 percent. To the nearest dollar, how much must he contribute to his IRA during each of the next ten years | |||||||||
| (with deposits being made at the end of each year) to meet his retirement goal? (Hint: The inflation rate | |||||||||
| of 3 percent per year is used only to calculate desired retirement income.) | |||||||||
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