Question
You are trying to decide how much to save for retirement. Assume you plan to save $25,000 per year with the first investment made one
You are trying to decide how much to save for retirement. Assume you plan to save $25,000 per year with the first investment made one year from now. You think you can earn 7% per year on your investments and you plans to retire in 28 years, immediately after making you last $25,000 investment.
a) How much will you have in your retirement account on the day you retires?
b) If, instead of investing $25,000 per year, you want to make one lump-sum investment today for your retirement that will result in the same retirement saving, how much would that lump sum need to be?
c) If you expects to live for 45 years in retirement, how much can you withdraw every year in retirement (staring one year after retirement) so that you will just exhaust your savings with the 45th withdrawal (assume your savings will continue to earn 7% in retirement)?
d) If, instead, you decide to withdraw $160,000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust your savings?
e) Back to the retirement saving phase, if you plan to save $25,000 per year, but you want to retire in 28 years with $3 million in your investment account, how high of an annual return do you need to earn on your investments?
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