Teuila Fepuleai expects to retire in 16 years. She has decided that she would like to retire with enough money in savings to withdraw $4,000 per month for 15 years after she retires. Knowing she will be conservative with her retirement fund once retired, she believes that she will earn a rate of 3.5% per year from her retirement date onwards.

Required:

(a) How much money does Teuila need to have when she retires?

(8 marks)

Teuila wonders how much she has to save per month in order to have that amount (calculated in (a)) at the time she retires. At the moment, she has about $7,500 in her savings account but she knows that will not be enough. She believes that she can earn an after-tax return of 6% compounded monthly on her savings.

Required:

(b) How much does Teuila need to save each month for the next 16 years to reach her goal?