Question
You turned 28 years old today and decide to start saving for retirement. You plan to save $5,000 at the end of each year and
You turned 28 years old today and decide to start saving for retirement. You plan to save
$5,000 at the end of each year and your first deposit will be made one year from today (on
your 29th birthday). You will make the last deposit on your 70th birthday.
Assume you earn 7% per year on your retirement savings.
a. How much will you have in your retirement savings on your 70th birthday?
b. How much will you have saved on your 70th birthday if you wait until your 40th birthday
to start saving (i.e., your first deposit is on your 40th birthday)? How many $5,000 annual
deposits did you avoid making by waiting until you turn 40 to start saving?
c. Assume your savings is $3,000,000 on your 70th birthday. If you withdraw an annual
income for 26 years beginning on your 70th birthday and ending on your 95th birthday,
what is the annual withdrawal that you can make assuming your investments continue to
earn 7%? Note that you will have a zero balance in your account after your last
withdrawal.
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