Question

Your client is 28 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $10,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 6% in the future.

1. If she follows your advice, how much money will she have at 65? Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. How much will she have at 70? Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

3. 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? Do not round intermediate calculations. Round your answers to the nearest cent.

   Annual withdrawals if she retires at 65: $

   Annual withdrawals if she retires at 70: $

Answer 1

a.Information provided:

Annual saving= $10,000

Time= 65 years - 28 years = 37 years

Interest rate= 6%

Enter the below to calculate the future value:

PMT= -10,000

N= 37

I/Y= 6

Press the CPT key and FV to calculate the future value.

The value obtained is 1,272,681.19.

Therefore, my client will have $1,272,681.19 when she is 65.

b.Information provided:

Annual saving= $10,000

Time= 70 years - 28 years = 42 years

Interest rate= 6%

Enter the below to calculate the future value:

PMT= -10,000

N= 42

I/Y= 6

Press the CPT key and FV to calculate the future value.

The value obtained is 1,759,505.45.

Therefore, my client will have $1,759,505.45 when she is 70.

c.i.Information provided:

Present value (PV)= $1,272,681.19

Time (N)= 20 years

Interest rate (I/Y)= 6%

Enter the below in a financial calculator to compute the annual withdrawal:

PV= -1,272,681.19

N= 20

I/Y= 6

Press the CPT key and PMT to compute the annual withdrawal.

The value obtained is 110,958.15

Therefore, my client will be able to withdraw $110,958.15 at the end of every year if she retires at 65 years.

2.ii.Information provided:

Present value (PV)= $1,759,505.45

Time (N)= 15 years

Interest rate (I/Y)= 6%

Enter the below in a financial calculator to compute the annual withdrawal:

PV= -1,759,505.45

N= 15

I/Y= 6

Press the CPT key and PMT to compute the annual withdrawal.

The value obtained is 181,163.54.

Therefore, my client will be able to withdraw $181,163.54 at the end of every year if she retires at 70 years.

  

In case of any query, kindly comment on the solution.