Question 4 Today is Bob's 55th birthday. Bob wants to retire at age 60. He heard that you are taking FIN 303, and so he has asked you for help in preparing a retirement savings plan. Starting today and at the beginning of each of the next four years, he intends to make a deposit into the retirement account. Starting on his 60th birthday and at the beginning of each of the next nine years, he intends to make a withdrawal of $70,000 from his retirement account. The account balance is expected to earn 12.00%, compounded annually. Assume that Bob's beginning balance is zero. a) Determine the annual deposit required to fund Bob's retirement expenses. Solve using an equation or Excel function. b) Suppose Bob believes that the chance he will die is 10% per year after age 60. As such, for every year after age 60, he wants to reduce his expected withdrawal amount by 10% of the prior year amount. In other words, he plans to withdraw $70,000 at age 60, 90% of $70,000 at age 61, 81% of $70,000 at age 62, and so on until his final withdrawal at age 69. Assume all other details remain the same. Using a table, determine the annual deposit required to fund Bob's revised retirement expenses. D E B Saving for retirement 2 Interest rate 3 Number of deposits 4 Number of withdrawals 5 Annual retirement withdrawal 6 7 8 9 Below is space provided for intermediate calculations, if needed. On the left, provide a description for any intermediate 10 calculation set up on the right (e.g., 'Present value of deposits"). 11 12 13 14 15 16 a) Annual deposit A 29 30 b) Annual deposit B (using a table) 31 Rate of withdrawal decrease 32 Note: You may not need to fill in every row to solve the problem. 33 Age Beginning balance 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Deposit/withdrawal Interest earned during year Ending balance 10 Question 4 Today is Bob's 55th birthday. Bob wants to retire at age 60. He heard that you are taking FIN 303, and so he has asked you for help in preparing a retirement savings plan. Starting today and at the beginning of each of the next four years, he intends to make a deposit into the retirement account. Starting on his 60th birthday and at the beginning of each of the next nine years, he intends to make a withdrawal of $70,000 from his retirement account. The account balance is expected to earn 12.00%, compounded annually. Assume that Bob's beginning balance is zero. a) Determine the annual deposit required to fund Bob's retirement expenses. Solve using an equation or Excel function. b) Suppose Bob believes that the chance he will die is 10% per year after age 60. As such, for every year after age 60, he wants to reduce his expected withdrawal amount by 10% of the prior year amount. In other words, he plans to withdraw $70,000 at age 60, 90% of $70,000 at age 61, 81% of $70,000 at age 62, and so on until his final withdrawal at age 69. Assume all other details remain the same. Using a table, determine the annual deposit required to fund Bob's revised retirement expenses. D E B Saving for retirement 2 Interest rate 3 Number of deposits 4 Number of withdrawals 5 Annual retirement withdrawal 6 7 8 9 Below is space provided for intermediate calculations, if needed. On the left, provide a description for any intermediate 10 calculation set up on the right (e.g., 'Present value of deposits"). 11 12 13 14 15 16 a) Annual deposit A 29 30 b) Annual deposit B (using a table) 31 Rate of withdrawal decrease 32 Note: You may not need to fill in every row to solve the problem. 33 Age Beginning balance 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Deposit/withdrawal Interest earned during year Ending balance 10
