Question

Professor,

In trying to apply my knowledge in the real world, I am trying to create a realistic retirement schedule. However, I am running into difficulties using both a financial calculator as well as our equations from class in doing this.

I am trying to do the following: plan a retirement schedule between the ages of 22 and 68, in which I would deposit 25% of my income each year. The income starts at 80,000 with an annual growth rate of 5% and, to be realistic, assuming an interest rate of 2.5%. I will assume for simplicity that I receive my first salary ($80,000) when I turn 22, and my last salary when I turn 68. As soon as I receive a salary, I will save 25% of it.

I would like to know (1) how much I will have in my retirement account when I turn 68, immediately after the last deposit, and (2) what single deposit made on my 22^nd birthday would give the same account balance when I turn 68.

However, this raises issues, as if I try to use the equation for the present value of a growing annuity with a 5% growth rate and 2.5% discount rate, r-g will yield a negative number. Also, I could not find online how to do this on my HP 10bII+ financial calculator and I don't want to manually enter 47 payments.

Do you know how I could overcome this obstacle?

All the best,

Jimmy

Unfortunately, I forgot to reply Jimmy’s email and I would like to get back to him as soon as possible. I want to answer Jimmy’s questions using the formulas we learned in class (not the calculator or Excel). Can you help me draft a response? You may use the calculator or Excel for calculations, but I want to send Jimmy the formula solution.

Answer 1

Age	Salary (increasing at 5% YoY)	Amount Invested (Salary * 25%)	Future Value on 68th birthday
22	80,000	20,000	62,277
23	84,000	21,000	63,796
24	88,200	22,050	65,352
25	92,610	23,153	66,946
26	97,241	24,310	68,579
27	102,103	25,526	70,251
28	107,208	26,802	71,965
29	112,568	28,142	73,720
30	118,196	29,549	75,518
31	124,106	31,027	77,360
32	130,312	32,578	79,247
33	136,827	34,207	81,180
34	143,669	35,917	83,160
35	150,852	37,713	85,188
36	158,395	39,599	87,266
37	166,314	41,579	89,394
38	174,630	43,657	91,575
39	183,361	45,840	93,808
40	192,530	48,132	96,096
41	202,156	50,539	98,440
42	212,264	53,066	100,841
43	222,877	55,719	103,300
44	234,021	58,505	105,820
45	245,722	61,430	108,401
46	258,008	64,502	111,045
47	270,908	67,727	113,753
48	284,454	71,113	116,528
49	298,677	74,669	119,370
50	313,610	78,403	122,281
51	329,291	82,323	125,264
52	345,755	86,439	128,319
53	363,043	90,761	131,449
54	381,195	95,299	134,655
55	400,255	100,064	137,939
56	420,268	105,067	141,303
57	441,281	110,320	144,750
58	463,345	115,836	148,280
59	486,513	121,628	151,897
60	510,838	127,710	155,602
61	536,380	134,095	159,397
62	563,199	140,800	163,285
63	591,359	147,840	167,267
64	620,927	jeff jeffy Next > < Previous Related Solutions Professor, In trying to apply my knowledge in the real world, I am trying to create... Professor, In trying to apply my knowledge in the real world, I am trying to create a realistic retirement schedule. However, I am running into difficulties using both a financial calculator as well as our equations from class in doing this. I am trying to do the following: plan a retirement schedule between the ages of 22 and 68, in which I would deposit 25% of my income each year. The income starts at 80,000 with an annual growth rate... In trying to apply my knowledge in the real world, I am trying to create a... In trying to apply my knowledge in the real world, I am trying to create a realistic retirement schedule. However, I am running into difficulties using both a financial calculator as well as our equations from class in doing this. 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