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Use the following information to design a life-cycle income-spending-saving plan: Initial age is 23 when income...

Use the following information to design a life-cycle income-spending-saving plan:

Initial age is 23 when income is $46,000.
Inflation is 0% so all increases are real rates.
Income grows by 3% annually except on decade birthdays (e.g. 30, 40, etc.) when it jumps by 15%.
The person works until age 68.
Any savings (wealth) grows at 5% annually.
Taxes take 25% of gross income each year. Savings are 15% of net (after-tax) income.
There is no Social Security or other government programs.
How much will they have saved (wealth) at age 68?
How long will their retirement wealth last if their retirement spending is 75% of their last work year’s spending?

Expert Solution

Ans: Before Starting the Calculation We need to consider the following points

1)Total Income for the first Year= $ 46000.

2)Income Growth- 3% Annually

-15% on the birthday of 30,40,50,60 years

3)Taxes=25% of Gross Income

4)savings =15%

5) Return on Savings=5% Annually

So the answer will be

Total Savings including Wealth=$ 697852.06

And There Last Year Spending = Net Income-Savings

=$ 202738.70 - $30410.80=$172327.89

so 75% of $172327.89 will be =$172327*75/100=$129245.90

which can be use for $697852.06 / $129245.90=5.39

So the Wealth will be consumed in 5 years 4 months approximately

The calculation table will be as follows

jeff jeffy answered 1 month ago

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