Question

In: Finance

Grady​ Zebrowski, age​ 25, just graduated from​ college, accepted his first job with a ​$45 comma...

Grady​ Zebrowski, age​ 25, just graduated from​ college, accepted his first job with a ​$45 comma 000 ​salary, and is already looking forward to retirement in 40 years. He assumes a 3.5 percent inflation rate and plans to live in retirement for 20 years. He does not want to plan on any Social Security benefits. Assume Grady can earn a 6 percent rate of return on his investments prior to retirement and a 6 percent rate of return on his investments​ post-retirement to answer the following questions using your financial calculator. a.  Grady wants to replace 90 percent of his current net income. What is his annual need in​ today's dollars? b.  Using the table LOADING...​, Grady thinks he might have an average tax rate of 13 percent at retirement if he is married. Adjusting for​ taxes, how much does Grady really need per​ year, in​ today's dollars? c.  Adjusting for​ inflation, how much does Grady need per year in future dollars when he begins retirement in 40 ​years? d.  If he needs this amount for 20 ​years, how much does he need in total for​ retirement?​ (Hint: Use the​ inflation- adjusted rate of​ return.) e.  How much does Grady need to save per month to reach his retirement goal assuming he does not receive any employer match on his retirement​ savings? Click on the table icon to view the FVIF table LOADING.... Click on the table icon to view the PVIFA table LOADING.... Click on the table icon to view the FVIFA table LOADING.... a. ​Grady's annual need in​ today's dollars is ​$ nothing. ​(Round to the nearest​ dollar.)

Solutions

Expert Solution

Part (a):

Given, present salary= $45,000, Income replacement ratio= 90%

Therefore, amount needed on retirement in today’s Dollar = $45,000*90% = $40,500

Part (b):

Given, tax rate (T)= 13%

Therefore, amount needed on retirement in today’s Dollar, adjusted for tax= $40,500/(1-13%)

= $46,551.72

Part (c):

Inflation rate= 3.5%

Therefore, amount needed on retirement in today’s Dollar at the age of 40 (ie., in 15 years)= $46,551.72*FVIF(3.5%,15)= $46,551.72*1.6753488 =$77,990.37

Part (d):

Life in retirement expected=20 years

Rate of return on investment after retirement=6%

Inflation adjusted rate of return= 6%-3.5%= 2.5%

Therefore, amount needed at the time of retirement= $77,990.37*PVIFA(2.5%,20)

=$77,990.37*15.589162= $1,215,804.53

Part (e):

Rate of return on investment till retirement=6%

Amount to be saved every month during 15 years till retirement

= $1,215,804.53*SFF(6%,15 Years Monthly)= $1,215,804.53* 0.003439= $4,181


Related Solutions

Grady​ Zebrowski, age​ 25, just graduated from​ college, accepted his first job with a $47,000 ​salary,...
Grady​ Zebrowski, age​ 25, just graduated from​ college, accepted his first job with a $47,000 ​salary, and is already looking forward to retirement in 40 years. He assumes a 2.1 percent inflation rate and plans to live in retirement for 20 years. He does not want to plan on any Social Security benefits. Assume Grady can earn a 9 percent rate of return on his investments prior to retirement and a 5 percent rate of return on his investments​ post-retirement...
You just graduated college with your Bachelors Degree and accepted a job offer at your dream...
You just graduated college with your Bachelors Degree and accepted a job offer at your dream company. You decided to celebrate by purchasing the vehicle of your dreams. Pictured is a Dodge Challenger HellCat see picture above for $58,995). You have a 720 credit score, therefore you were able to get a 5% interest rate on a 7 year loan. You will be making monthly payments. Using Excel, prepare a professional amortization schedule for the entire 7 years. It must...
Angle, age 24 and single, is a recent college graduate. They have just accepted a job...
Angle, age 24 and single, is a recent college graduate. They have just accepted a job offer with Financial Planning Pals, LLC, as a financial planner making $100,000/ yr.    Angle has some student debt and lives in an apartment without any roommates. They have $0 savings currently. Additionally, Financial Planning Pals, LLC is a cheap employer and they do not offer any type of Qualified Retirement Plan. Angle is confused about how to pay down their student loan debt, establishing...
Angle, age 24 and single, is a recent college graduate. They have just accepted a job...
Angle, age 24 and single, is a recent college graduate. They have just accepted a job offer with Financial Planning Pals, LLC, as a financial planner making $100,000/ yr.    Angle has some student debt and lives in an apartment without any roommates. They have $0 savings currently. Additionally, Financial Planning Pals, LLC is a cheap employer and they do not offer any type of Qualified Retirement Plan. Angle is confused about how to pay down their student loan debt, establishing...
After graduating from UTD at age 25, John got his first job at Goldman Sachs with...
After graduating from UTD at age 25, John got his first job at Goldman Sachs with an annual salary of $60,000 a year and a one-time signing bonus of $25,000. He bought a car using his signing bonus. Goldman Sachs offers a 401K retirement investment plan that will match employee’s contribution up to 10%. For example if John invests 1% in the 401K account, Goldman Sachs will put in another 1% into his account. John is expecting an annual salary...
Paul Jordan has just graduated from high school and has accepted the job of help desk...
Paul Jordan has just graduated from high school and has accepted the job of help desk specialist in the home office of the DurandOil Co. As a customer service representative at the help desk, Paul answers customer questions by phone, fax, e-mail, and web-based technologies. Software is provided to assist help desk specialists in quickly finding answers to commonly asked questions about aboutparticular products and services. It is your plan, as administrative manager, to have each worker, such as Paul,...
You just graduated from college and are starting your new job. You realized the importance to...
You just graduated from college and are starting your new job. You realized the importance to save for the future and have figured out that you will save $2,000 per month for the next 14 years; and then increase to $6,000 per month for the following 6 years. The amount accumulated at the end of these investments will be your retirement egg nest. You plan to start retirement and start withdrawing monthly amounts the following month (you will be in...
You just graduated from college and are starting your new job. You realized the importance to...
You just graduated from college and are starting your new job. You realized the importance to save for the future and have figured out that you will save $1,000 per month for the next 14 years; and then increase to $5,000 per month for the following 5 years. The amount accumulated at the end of these investments will be your retirement egg nest. You plan to start retirement and start withdrawing monthly amounts the following month (you will be in...
Zane just graduated from college and us thrilled to explore his new life and all the...
Zane just graduated from college and us thrilled to explore his new life and all the excitement that comes with it. Just now, Zane received communication from a company to whom he owes $100,000 in student loans. The information in the communication states that Zane agreed on an annual interest rate of 7.99% that is compounded annually. Also, Zane is allowed to make one fixed payment at the end of each year for the next 10 years. Zane is shocked...
Your 21 year old client just graduated from college and started a job with monthly salary...
Your 21 year old client just graduated from college and started a job with monthly salary of $5,000 per month. He wants to retire when he is 60 years old and wants to start saving for retirement right away. We cannot be sure of how long we live after retirement, but the client wants to be extra careful and save for 30 years of after retirement life. Market expectation for average annual inflation for the future is 1.7% (Let’s assume...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT