Question
Today is your 40th birthday. You expect to retire at age 65, and actuarial tables suggest that you will live to be 100. You want
Today is your 40th birthday. You expect to retire at age 65, and actuarial tables suggest that you will live to be 100. You want to move to Hawaii when you retire. You estimate that it will cost you $200,000 to make the move (on your 65th birthday). Starting on your 65th birthday and ending on your 99th birthday, your annual living expenses will be $25,000 a year. You expect to earn an annual return of 7% on your savings.
a. How much will you need to have saved by your retirement date?
b. For this part, assume that you already have $50,000 in savings today. How much would you need to save today and at ages 41 to 64 to be able to afford this retirement plan?
c. If you did not have any current savings and did not expect to be able to start saving money for the next 5 years (that is, your first savings pay-ment will be made on your 45th birthday), how much would you have to set aside each year after that to be able to afford this retirement plan?
PLANNING FOR RETIREMENT Annual return 7% Cost of move Yearly cost 200,000 25,000 Note that this number matches the table (year 65) on the previous sheet Cost of retirement at age 65 a) PV of cost of retirement at age 40 Initial savings Needed PV of savings b) Needed annual savings PV of cost of retirement at age 45 c) Needed annual savingsStep by Step Solution
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