You just turned 27 (January 1st) and have $15,000 in savings. Your current is salary $65,000 which you expect to grow at a real rate of 1.75% per year until you retire. You are paid on an annual basis with wages being received at the end of each year. Assume that you will retire when you turn 67 and that you will die on your 95th birthday. Your current level of subsistence consumption is $20,000 per year. You are prudent and want to your total standard of living to increase by 1.25% per year in real terms until you retire. After you retire you want your total standard of living to decline by 1% per year (real rate). Assume that the real valuation rate is 4% per year and that you pay taxes according to the following (hypothetical) tax system:

Please compute your current optimal consumption, assuming that all cash flows take place at the end of the year. You should also assume that: i) you are not taxed on investment income, i.e., you only need to account for taxes on wage income and ii) this tax system offers no tax credits or deductions and has no surtax.

Taxable Income Levels Average Tax Rate $0 to $20,000 0% $20,000.01 to $70,000 15% $70,000.01 to $100,000 25% > $100,000 35% Taxable Income Levels Average Tax Rate $0 to $20,000 0% $20,000.01 to $70,000 15% $70,000.01 to $100,000 25% > $100,000 35%