Lets Plan for Retirement

Thinking about retirement, how much money do you think you need when you retire? How much money do you want to have in retirement? When do you think you will be able to or want to retire? When should you start saving for retirement? How will you be able to save money? We will take a look at some of these questions to hopefully help you realize what will actually be possible for your retirement

Formulas Needed:=[(1+)1]=(1+)

Questions:

1. Determine how much you can save on a monthly basis to put into your retirement account and how many years it will be until you retire. Assume an 8% rate of return and a monthly compounding period. Plug these numbers into the formula.

a. How much money will you have in retirement?

b. What things can you change to increase the amount you will have in retirement?

c. Make just one change and write down how much money you will now have in retirement.

d. Use the numbers from Part A, but again, change just one of the variable values to see how that will change the total amount you will have in retirement.

e. One variable you may not have much control over which can change the amount you will be able to save for retirement is the interest rate. However, keeping all other numbers the same as in Part A, change the interest rate to 4% and determine how much money you will have. Then change the rate to 10% and see how much money you will have. Does the interest rate make much of a difference? Are the rates realistic?

2. Now lets flip this around. Determine how much money you want to have in retirement. Again assume an 8% rate of return and a monthly compounding period. Pick a retirement age to determine how long you will be saving.

a. How much money do you need to save monthly to have the amount you would like to have in retirement?

b. What things can you change to decrease the amount you will have to save monthly?

c. Make just one change and write down how much money you will now have to save monthly.

d. Use the numbers from Part A, but again, change just one of the variable values to see how that will change the amount you have to save monthly.

e. Lets change the interest rate again. Using the numbers in Part A, change the rate to 4% to determine how much money you will have to put aside monthly. Then change the rate to 10% and run the calculation again. Are the monthly amounts realistic? If they arent now, will they be at some point in your career?

3. Taking the amount you think you will be able to (or want to) save for retirement, if you made 4% interest on this amount compounding annually, would you be able to live off of that amount for the year? What if you made 8% or 10% interest? Would this change anything?