Question $1$: Retirement Planning

You just turned $25$ and got your first job as a financial advisor after graduation. Your starting salary

is $$60,000.$ Assume you will receive salary at the end of each year $($i$.$e$.,$ first payment when you

turn $26).$ You expect your salary to increase, on average, by $3\%$ per year for $10$ years, then $5\%$ per

year for the remainder of your career.

You expect to retire when you turn $67$ and live until $85.$ You plan to spend $$100,000$ per year in

your retirement in today$$s dollars. Assume nominal interest rate is $5\%.$ Inflation is estimated to be

$2\%$ per year, on average. How much do you have to save per year to meet your retirement goals?

$$ Not all information is relevant in solving the problem.

$$ A timeline is provided in the excel to help you see the relation between the cashflows.

$$ Do not discount$/$compound real dollars with nominal rates, or nominal dollars with real

rates.