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 = $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?

Answer 1

6 calculation of financial capital at Retirment Salary = $70,000 annually paid Growth Mate = 1:54. compounding anually consumption = $20,000 Incroaring 1% per year at age of 27 = 70000 - 20,000 = $1,450,000 0.001 financial capital need for remaining life =$1250,000 At Age of 67 PV of salary. = 70,000 × 48 1 ) consumption = $20,000 X 840 845-48.886. I Salary - consumption = 0 47 Valuation After 40 years from the the future value of Money. will be calculated by Prerent value factor and dinde by 4% and financial arrets that in negative will be less and to Amount of financial Capital that will be needed. - Salary = (70,000 * Ruot #215) Leusi conrumption = 977720 Less: - tax = * 1050 1x det 1.5% growth of income