Question

In: Finance

Bill is 30 years old man earning $80,000 per year. He expects to work till age...

  1. Bill is 30 years old man earning $80,000 per year. He expects to work till age 65. He desires to have retirement income equal to 80% of pre-retirement income. He plans on 25 years of retirement life. He plans to spend extra $15,000 for vacation during year 70 and leave $25,000 for charity at the end. Assume interest rate is 6%. How much should he save per year during his working years to achieve his plan? If interest rate decreases, will he need to save more or less? Explain.

Solutions

Expert Solution

`

If the interest rate decreases, then Bill will have to save more to cover the expenses in retirement. This is because a smaller interest rate when compounded gives a smaller amount at retirement. The PV of retirement goal will be larger too as the smaller interest rates cause smaller discounting effect.

Formulae


Related Solutions

You plan to withdraw $80,000 per year for 30 years after youretire at age 65....
You plan to withdraw $80,000 per year for 30 years after you retire at age 65. You are age 25 now and want to make one deposit at end of each year for 40 years then stop depositing after 40 deposits. To accumulate enough funds to afford the 30 withdrawals, you are presented with 2 options. First is an investment with 8% annual return and second one with 6% annual return. What is the difference between the annual deposit amount...
Mr. H is a 30-year-old man. He was riding his bike to work and was struck...
Mr. H is a 30-year-old man. He was riding his bike to work and was struck by a vehicle traveling at 35 miles per hour.  He was comatose with a GCS 7 upon arrival to the ED. What are the leading causes of traumatic brain injury in the United States?  Describe important teaching points in prevention of a TBI.   Traumatic brain injury can be classified into primary brain injury and secondary injury, describe the differences in the two types of injury.  List common...
You plan to withdraw $80,000 per year for 30 years after you retire at age 65....
You plan to withdraw $80,000 per year for 30 years after you retire at age 65. You are age 25 now and want to make one deposit at end of each year for 40 years then stop depositing after 40 deposits. To accumulate enough funds to afford the 30 withdrawals, you are presented with 2 options. First is an investment with 8% annual return and second one with 6% annual return. What is the difference between the annual deposit amount...
John was a high school teacher earning $ 80,000 per year. He quit his job to...
John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering.In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills.John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months. After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account....
John was a high school teacher earning $ 80,000 per year. He quit his job to...
John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills. John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months. After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for...
Bill Hughes is a 26 year-old man who lives with his wife. He has a history...
Bill Hughes is a 26 year-old man who lives with his wife. He has a history of type one diabetes and is overweight. He presented to the emergency department, complaining of feeling foggy in the head and sleepy. His wife reports that he became very drowsy and confused after dinner. Bill has high blood sugar levels which were managed in the emergency department and he has been transferred to the medical ward. You are the nurse assigned to care for...
Mitch and Bill are both age 75. When Mitch was 25 years old, he began deposited...
Mitch and Bill are both age 75. When Mitch was 25 years old, he began deposited $1400 per year into a savings account. He made deposits for the first 10 years, and which point he was forced to stop making deposits. However he left his money in the account, where it continued to earn interest for the next 40 years. Bill didn’t start saving until he was 45 years old, but for the next 30 years he made annual deposit...
Assume Jacob is 30 years old and has 40 more years to work. Currently he doesn’t...
Assume Jacob is 30 years old and has 40 more years to work. Currently he doesn’t have any savings. His annual income in real terms is $60,000. Assuming a life expectancy of 90 years, real interest rate throughout of 4% and desired retirement income of 70% of pre-retirement income, prepare a life time consumption-savings schedule for Jacob. Specifically calculate the following and then show excel schedule showing lifetime plan. 1-Annual savings and annual consumptions during the 40 working years 2-Accumulated...
You are 30 years old and want to retire at the age of age 65 and...
You are 30 years old and want to retire at the age of age 65 and expect to live another 25 years. On the day you retire, you want to have $900,000 in your retirement savings account. a) If you invest monthly starting one month from today and your investment earns 6.0 percent per year, How much money do you need to invest every month until you retire? b) You're retired with $900,000 and you have 25 more years. You...
Ryan is 50 years old and will retire in 15 years. He expects to live for...
Ryan is 50 years old and will retire in 15 years. He expects to live for 25 years after he retires, until he is 90. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 15 years from today, at which time he will receive 24 additional...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT