You are currently 27 years old and plan on retiring at age 67. Based on current
ID: 2738306 • Letter: Y
Question
You are currently 27 years old and plan on retiring at age 67. Based on current life tables and family history, you anticipate living another 23 years after retirement (morbid but important to consider). You estimate that you will need $157,212 per year in retirement and can earn 5% per annum on your investments
A-How much money do you need today to meet your pre-tax income demands during retirement if you will live on your last year of income in the first year of retirement and the draw down your nest egg at the start of the second year (equivalently, the end of the first year)?
B-how much money do you need at the start of your retirement to meet the pre-tax income demands during retirement? Assume that you will live on your last year of income in the first year of retirement and then draw down your nest egg at the start of the second year (equivalently the end of the first year)
C-How much pre-tax income do you need in retirement each year in order to meet your retirement needs?
Explanation / Answer
b.
Compute the Amount required at the retirement.
Annual expenditure = 157,212
Nper = 23 years
Rate = 4%.
Compute the amount at the time of retirement.
PV = PV(Rate,Nper,Pmt,FV) = PV(4%,23,157212,0) = 2,335,673.79.
Therefore, amount required at retirement is 2,335,673.79.
a.
Compute the present value of the retirement amount.
PV= PV(rate,Nper,Pmt,FV) = PV(4%,40,0,-2335673.79) = $486,495.26.
Therefore, the amount required today is $486,495.26.
c.
Compute the annual savings to earn for the retirement.
Pmt =PMT(4%,40,0,2335673.79) = $24,579.44
Therefore, yearly payment required is $24,579.44.
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