You just turned $25$ and got your first job as a financial advisor after graduation. Your starting salary

is $$60,000.$ Assume you will receive salary at the end of each year $($i$.$e$.,$ first payment when you

turn $26).$ You expect your salary to increase, on average, by $3\%$ per year for $10$ years, then $5\%$ per

year for the remainder of your career.

You expect to retire when you turn $67$ and live until $85.$ You plan to spend $$100,000$ per year in

your retirement in today$$s dollars. Assume nominal interest rate is $5\%.$ Inflation is estimated to be

$2\%$ per year, on average. How much do you have to save per year to meet your retirement goals?

$$ Not all information is relevant in solving the problem.

$$ A timeline is provided in the excel to help you see the relation between the cashflows.

$$ Do not discount$/$compound real dollars with nominal rates, or nominal dollars with real rate$1$s

Age Nominal CF Real CF Starting Salary

$25$ Salary growth $1$

$26$ Salary growth $2$

$27$ inflation

$28$ Annual spending

$29$ interest rate

$30$

$31$ PV$67,$real

$32$ PV$67,$nominal

$33$ PV$25,$nominal

$34$ growth rate in salary for first $10$ years

growth rate in salary for remaining job time

$P{V}_{67,\text{r}\text{e}\text{a}\text{l}}$

$P{V}_{67,\text{n}\text{o}\text{m}\text{i}\text{n}\text{a}\text{l}}$

$P{V}_{25\text{n}\text{o}\text{m}\text{i}\text{n}\text{a}}$

Savings per year Savings per year

$35$

$36$

$37$

$38$

$39$

$40$

$41$

$42$

$43$

$44$

$45$

$46$

$47$

$48$

$49$

$50$

$51$

$52$

$53$

$54$

$55$

$56$

$57$

$58$

$59$

$60$

$61$

$62$

$63$

$64$

$65$

$66$

$67$

$68$

$69$

$70$

$71$

$72$

$73$

$74$

$75$

$76$

$77$

$78$

$79$

$80$

$81$

$82$

$83$

$84$

$85$