Question

In: Finance

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 of the two options?

Expert Solution

We will find the annual deposit required with an annual rate of 8% and 6%. Then take the difference between the two.

Part 1: The annual deposit required with an annual rate of 8%

First we will find the value of the retirement corpus as of age 65

PMT = 80,000

n = 30 annual payments

r = 8% per year

The value of the retirement corpus as of age 65 is $900,622.6675

Next, we will find the annual deposit required with this as the FV

FV = The value of the retirement corpus as of age 65

FV = $900,622.6675

n = 40 years

r = 8% annual rate

Annual deposit required with 8% annual return is $3,476.5489476379

Part 2: The annual deposit required with an annual rate of 6%

First, we will find the value of the retirement corpus as of age 65

PMT = 80,000

n = 30 years

r = 6% per year

The value of the retirement corpus as of age 65 is $1,101,186.4921333333

Next, we will find the annual deposit required with this as the FV

FV = The value of the retirement corpus as of age 65

FV = $1,101,186.4921333333

n = 40

r = 6%

Annual deposit required with 8% annual return is $7,115.3560743036

The difference between the annual deposit amount of the two options is (7,115.3560743036 -3,476.5489476379) = $3,638.8071266657

jeff jeffy answered 2 years ago

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...

1.A woman wants to withdraw $80,000 per year for the next 30 years. Her retirement funds...

1.A woman wants to withdraw $80,000 per year for the next 30 years. Her retirement funds will be invested in assets that are expected to earn an annual rate of return of 6%. Assume her first withdraw comes one year after her date of retirement. How much money does she need in her retirement fund on her retirement date. 1b. It is 50 years prior to her retirement date. Starting one year from today, she plans to begin funding her...

You plan to retire after 30 years. After that, you need $200,000 per year for 10...

You plan to retire after 30 years. After that, you need $200,000 per year for 10 years (first withdrawal at t=31). At the end of these 10 years, you will enter a reitrement home where you will stay for the rest of your life. As soon as you enter the retirement home, you will need to make a single payment of $1,000,000. You want to start saving for your retirement in an account that pays you 9% p.a. Therefore, beginning...

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...

Suppose you would like to be able to withdraw $240,000 per year for 30 years you...

Suppose you would like to be able to withdraw $240,000 per year for 30 years you are retired. How much do you need to save for the 45 years you are working reach this goal? Assume that you can earn 5% on your investments during your retirement and 7.5% in the years you are saving. Also, assume begin saving in year 1 and don’t make your first withdraw until year 46.

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

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,...

The Goal Is to be able to withdraw $60,000 a year. From 65 to age 85...

The Goal Is to be able to withdraw $60,000 a year. From 65 to age 85 YOUR ESTIMATE/BEST GUESS: I intend to withdraw $_________________ at the END of each year from my retirement account to support my lifestyle. Input how much you think you need to live comfortably in your retirement years. To help you with your estimate, experts estimate you should plan to have approximately 70% of your ending salary in your retirement years in order to maintain your...

Wants to be able to withdraw $80,000 per year at the end of each year from...

Wants to be able to withdraw $80,000 per year at the end of each year from his retirement account for 30 years after he retires. Assuming a 7% annual compound interest rate, what is the minimum amount Mr. Smith must-have in this account when he retires? Please indicate what you entered into your calculator to solve these problems.

You are 40 years old today and want to plan for retirement at age 65. You...

You are 40 years old today and want to plan for retirement at age 65. You want to set aside an equal amount every year from now to retirement. You expect to live to age 95 and want to withdraw a fixed amount each year during retirement that at age 65 will have the same purchasing power as $70,000 has today. You plan on withdrawing the money starting the day you retire. You have $15,000 saved for retirement today. Inflation...

You are 47 years old today and want to plan for retirement at age 65. You...

You are 47 years old today and want to plan for retirement at age 65. You want to set aside an equal amount every year from now to retirement. You expect to live to age 87 and want to withdraw a fixed amount each year during retirement that at age 65 will have the same purchasing power as $73,868 has today. You plan on withdrawing the money starting the day you retire. You have not saved any money for retirement....