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In: Finance

You are 20 years old. You plan to work until you are 80 years old. When...

You are 20 years old. You plan to work until you are 80 years old. When you turn 80 you will retire. You expect to live until an age of 95. You have forecasted that you will need $50,000 a year in income for your retirement.Your current salary is $45,000 per year. You expect your salary to grow by 0% per year.You will save 5% of your gross income each year.You will invest your savings in risk free treasury notes that are expected to yield 3% each year.Based on this information you will have accumulated enough wealth to finance your retirement.

True or False?

Solutions

Expert Solution

Your current Age is 20 year and wants to work at 80 year old.So total number of year you will work is 60 year.

Your current salary is $45,000 and expect 0% growth in salary, you withdraw $45,000 per annum for 60 year.

Annual Saving = $45,000 × 5%

= $2,250

Annual saving in retirement account for next 60 year is $2,250.

Accumulated value at age of 80 year is calculated in excel and screen shot provided below:

Accumulated value at age of 80 year is $366,870.23.

He live for 15 year and wants to withdraw $50,000 per annuam,so total value required at time of retirement is calculated in excel and screen shot provided below:

Total amount required at time of retirement will be $614,803.66.

Since accumulated value is less than total amount required at time of retirement so you will not have accumulated enough wealth to finance your retirement.

Statement is false.

jeff jeffy answered 3 weeks ago
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