Question
You just turned 27 (January 1st) and have total financial assets of $15,000. You are currently working and earn a salary of $70,000 (i.e. w27
You just turned 27 (January 1st) and have total financial assets of $15,000. You are currently working and earn a salary of $70,000 (i.e. w27 = $70,000). You are paid annually and are paid at the end of each year. Your wages are growing at a real rate of 1.5% per year, annual compounding. You expect his rate to remain constant for the duration of your working life - you plan to retire at age 67. Assume that you will die at age 90. You want your consumption to grow during your working years then level off once you retire (in real terms). In specific, you want your discretionary to grow by a real 1% per year during your working years (i.e. until age 67) and then decreases to a real 0% per year for the remainder of your life (during your retirement). Your current minimum subsistent consumption is $20,000 per year and growing at a real rate of 1% per year (for the remainder of your life). Assume that the real valuation rate is 4% per year. Lastly, assume that you pay taxes according to the following tax system: Income Levels Average Tax Rate
$0 - $19,999 0%
$20,000 - $69,999 21%
$70,000 - $100,000 25%
> $100,000 29%
Part A: How much financial capital will you have when you retire?
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