You have just turned 25 years old, have just received your MBA from SIT, and have accepted your finance job. Now you must decide how much money to put into your monthly retirement plan account which currently has zero dollars. The plan works as follows: Every dollar in the plan earns 5% per year for the entire period. You cannot make withdrawals until you are 55 years old. After that point, you can make withdrawals as you see fit but it will reduce the amount you have after the retirement. You decide that you are most likely to to live up to 90 years and work until you turn 67. You estimate that to live comfortably in retirement, you will need $10,000 per month, net of your social security benefits, starting at the end of the first month of retirement and ending on your 90th birthday.

Saving plan 1: You will contribute the same amount to the plan at the end of every month that you work and do not withdraw any amount before 67.

(a) How much do you need to contribute at the beginning so that you have enough fund in the retirement account?

Saving plan 2: You will contribute a growing amount to the plan at the end of every month that you work. The growth rate is 0.25% per month. You plan to withdraw $50,000 for a world tour with your spouse at end of age 60.

(b) How much do you need to contribute at the beginning so that you have enough fund in the retirement account?

You have friend who has turned 25 years old, who has just received like you a MBA degree from SIT, and have accepted a marketing job. Now she also must decide how much money to put into your monthly retirement plan account which currently has $20,000 dollars that she saved from the temporary jobs she did between her undergraduate degree and her MBA degree. She has a similar plan like you: Every dollar in the plan earns 5% per year for the entire period. You cannot make withdrawals until she is 55 years old. After that point, you can make withdrawals as you see fit but it will reduce the amount you have after the retirement. She is most likely to to live up to 90 years too and like you work until you turn 67. She estimate that to live comfortably in retirement, you will need $11,000 per month, net of your social security benefits, starting at the end of the first month of retirement and ending on your 90th birthday.

Only Saving Option: She will contribute a growing amount to the plan at the end of every month that she works. The growth rate is 0.2% per month. She plans to withdraw $75,000 for a more comfortable world tour with your her spouse at end of age 60.

(c) How much does she need to contribute at the beginning so that you have enough fund in the retirement account?