Question

Your client is 40 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $15,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 10% in the future.

a. If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent.

b. How much will she have at 70? Round your answer to the nearest cent.

c.She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70. If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age? Round your answers to the nearest cent.

-Annual withdrawals if she retires at 65: $

-Annual withdrawals if she retires at 70: $

Answer 1

a. Money client will have at 65 years old:

Savings per annum = $15000

Interest Rate = 10%

Term = 25 years

Future Value = Payment * Future Value annuity factor (25 , 10%)

Future Value = $15000 * 98.3471

Money client will have at 65 years old = $1475205.89

b.. Money client will have at 70 years old:

Savings per annum = $15000

Interest Rate = 10%

Term = 30 years

Future Value = Payment * Future Value annuity factor (30 , 10%)

Future Value = $15000 * 164.4940

Money client will have at 65 years old = $2467410.34

c. Annual withdrawals if she retires at 65

Present Value = Payment * Present Value annuity factor (20 , 10%)

Interest Rate = 10%

Term = 20 years

Present Value = Payment * Present Value annuity factor (30 , 10%)

$1475205.89 = annual withdrawal * 8.51356

Annual withdrawal if client retires at 65= $173277.13

c. Annual withdrawals if she retires at 70

Present Value = Payment * Present Value annuity factor (20 , 10%)

Interest Rate = 10%

Term = 15 years

Present Value = Payment * Present Value annuity factor (15 , 10%)

$2467410.34 = Annual withdrawal * 7.6061

Annual withdrawal if client retires at 70= $324399.76