You are meeting with a financial planner to begin saving for retirement. Your starting salary is $65,000 in year one and you expect to receive pay increases at a rate of 3% each year for the first 30years of your career, then maintain your salary until you retire. Your financial planner advised you to invest 10% of your yearly salary into a retirement account to maintain a similar lifestyle inretirement. You expect to work for the next 40 years. How much will you have in the account when you retire if your retirement account produces an average return of 9% per year?

The objective of this question is to calculate the total amount in the retirement account at the end…

Answered: You are meeting with a financial…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 23P

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After graduation from university, you start working and you want to plan for your retirement. You will be retiring in 25 years and during your retirement, you plan to spend USD 20,000 per year. You expect your retirement to last 30 years. You believe you can earn 8% on your retirement savings. If you make annual payments into a retirement plan during your working life, how much will you need to save each year to reach your retirement goal? (You will make the first payment at the end of the year).
Every year, you receive your entire annual salary at the end of the year. This year, your end-of-year salary will be $50,000 (in nominal terms). In real terms, you expect your salary to increase at a rate of 2% per year in the future. You have decided to start saving for retirement by putting money in a savings account. You plan to retire in 35 years, and you expect to live for 25 years after that. You assess that a reasonable lifestyle during those 25 years will require you to have, at the end of every year, a disposable income of $25,000 in real terms (i.e. the same purchasing power as $25,000 today). The nominal interest rate on your savings account is 8%, and it is expected to stay at that rate forever. The real interest rate is also expected to stay at its current level of 3.5%. How much money (in nominal terms) will you need to have in your savings account when you retire, in 35 years (end of year 35), in order to be able to enjoy the lifestyle that you find reasonable? HINT:…
You want to begin saving for your retirement. You plan to contribute $12,000 to the account at the end of this year. You anticipate you will be able to increase your annual contributions by 3% each year for the next 45 years. If your expected annual return is 8%, how much do you expect to have in your retirement account when you retire in 45 years?
Today is your birthday and you decide to start saving for your retirement. You will retire on your 65th birthday and will need $70000 per year at the end of each of following 20 years. You will make a first deposit 1 year from today in an account paying 20% interest annually and continue to make an identical deposit each year up to and including the year you plan to retire. If an annual deposit of $6,800 will allow you to reach your goal what birthday are you celebrating today?
After completing your Bachelor of Business (Accounting) degree, suppose you secure a permanent position as an accountant. You drafted a financial plan to retire in 30 years from now. So, you are thinking about creating a fund that will allow you to receive $40,000 at the end of each year for 25 years after your retirement. The interest rates are expected to be 2.25% per annum during the 30year pre- retirement period and 1.75% during the retirement period. Required: a) To provide the 25- year, $40,000 a year annuity, calculate how much should be in the fund account when you retire in 30 years. b) How much will you need today as a single amount to provide the fund calculated in part (a) if you earn 2.35% per year during the 30 years preceding your retirement?c) What effect would a change (increase/decrease) in the interest rates, both during and prior to retirement, have on the values calculated in parts (a) and (b)? Explain why. d) (Using different interest rates) Assume that the…
You want to be able to withdraw $35,000 from your account each year for 15 years after you retire.You expect to retire in 25 years.If your account earns 10% interest, how much will you need to deposit each year until retirement to achieve your retirement goals?
Your financial advisor has encouraged you to save $500 each month for retirement. You expectto retire in 40 years. How much will you have at the end of 40 years? If you want to have a 30-year retirement, how much income would that amount generate each month of yourretirement? Show calculations.
Use the following to answer the next two questions: You decide to be in saving for your retirement days. You begin with depositing $300 per month into a savings account that is earning 12% per year compounded monthly. You may deposit faithfully for 25 years at which time you'll retire. Your institution wants to keep your money and as an incentive begins paying 15% per year compounded monthly provided your delay, taking out any money for four years. After four years, you decide to begin withdrawing equal payments for the next 20 years. What are the equal monthly payments that you can withdraw if you want the account to last for 20 years?
A company offers you employment for the next 30 years until retirement but will not pay you a pension when you do retire, so you start investing now for your retirement. You know you can earn 5% compounded monthly on an available investment for the next 30 years until you retire. During retirement you will earn 6% compounded annually on any funds remaining in the investment, and you expect to withdraw $110.000 at the end of each year of your retirement. If you anticipate living 20 years in retirement, how much of your salary as a minimum would you have to invest at the end of each year until retirement?

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