Question

4. You are saving for retirement. Suppose you are comfortable with an annual salary of $65,000 per year. You'd like to retire in 17 years and then plan to live for another 25 years. (a) What would be the equivalent of $65K in 47 years, accounting for inflation? (b) How much would you need in the account on retirement day in order to get this amount each year for 25 years? (c) Suppose you found a retirement account paying 6% interest compounded quarterly. How much money would you need to invest cach quarter for the next 47 years in order to have this balance in the bank on retirement day?

it doesn't give me that

you don’t need to worry about the inflamation rate

Answer 1

Ignoring Inflation rate :

Assume inflation rate =0

Amount required per year during retirement

$65,000

Pmt

Amount required each year

$65,000

Nper

Number of years in retirement

25

Rate

Assumed interest rate of 6% during retirement

6%

Type

Retirement income at the beginning of each year

1

PV

Amount needed in the account on retirement

$880,773.24

(Using PV function of excel with Rate =6%, Nper=25, Pmt=-65000,Type=1)

Excel Command : =PV(6%,25,-65000,,1)

(Type=1,if the annual income is at the beginning of year, Type=0 , if it is at end of year)

c

Quarterly savings required:

Rate

Quarterly Interest Rate =6/4=

1.50%

Nper

Number of quarters of savings =47*4

188

Fv

Future value required at end of 47 years

$880,773.24

PMT

Amount to be invested in each quarter

$856.27

(Using PMT function of excel with Rate =1.5%, Nper=188, Fv=-880773.24)

Excel Command: =PMT(1.5%,188,,-880773.24)

fx =PV(6%, 25,-65000,,1) 010 A B D E F G H I K L M N Ignoring Inflation rate : Assume inflation rate=0 Amount required per year during retirement $65,000 Pmt $65,000 Nper Rate Type PV Amount required each year Number of years in retirement Assumed interest rate of 6% during retirement Retirement income at the beginning of each year Amount needed in the account on retirement Excel Command : =PV(6%, 25,-65000,,1) $880, 773.24 (Using PV function of excel with Rate =6%, Nper=25, Pmt=-65000, Type=1) (Type=1,If the annual income is at the beginning of year, Type=0, if it is at end of year) 017 - fo =PMT(1.5%, 188,,-880773.24) E F G H I J K L M Ignoring Inflation rate : Assume inflation rate =0 Amount required per year during retirement $65,000 $65,000 25 Pmt Nper Rate Type PV 6% Amount required each year Number of years in retirement Assumed interest rate of 6% during retirement Retirement income at the beginning of each year Amount needed in the account on retirement Excel Command : =PV(6%, 25, -65000,,1) $880, 773.24 (Using PV function of excel with Rate =6%, Nper=25, Pmt=-65000, Type=1) (Type=1, if the annual income is at the beginning of year, Type=1, if it is at end of year) C Rate Nper FV PMT Quarterly savings required: Quarterly Interest Rate=6/4= Number of quarters of savings =4794 Future value required at end of 47 years Amount to be invested in each quarter Excel Command: =PMT(1.5%, 188,,-880773.24) 1.50% 188 $880, 773.24 L $856.27 I (Using PMT function of excel with Rate =1.5%, Nper=188, FV=-880773.24)