Question

Your client is 37 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $5,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 11% in the future. 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. $ How much will she have at 70? Do not round intermediate calculations. Round your answer to the nearest cent. $ 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= $5,000

Time= 65 years - 37 years= 28 years

Interest rate= 11%

The question is solved by calculating the future value.

Enter the below in a financial calculator to compute the future value.

PMT= -5,000

N= 28

I/Y= 11

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

The value obtained is 799,086.43.

Therefore,she will have $799,086.43 at 65.

b.Information provided:

Annual saving= $5,000

Time= 70 years - 37 years= 33 years

Interest rate= 11%

The question is solved by calculating the future value.

Enter the below in a financial calculator to compute the future value.

PMT= -5,000

N= 33

I/Y= 11

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

The value obtained is 1,377,646.11

Therefore,she will have $1,377,646.11 at 70.

c.i.Information provided:

Present value= $799,086.43

Time= 20 years

Interest rate= 11%

The annual withdrawal is calculated by entering the below in a financial calculator:

PV= -799,086.43

N= 20

I/Y= 11

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

The value obtained is 100,345.79.

Therefore, the amount of annual withdrawal is $100,345.79.

c.ii.Information provided:

Present value= $1,377,646.11

Time= 15 years

Interest rate= 11%

The annual withdrawal is calculated by entering the below in a financial calculator:

PV= -1,377,646.11

N= 15

I/Y= 11

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

The value obtained is 191,582.69.

Therefore, the amount of annual withdrawal is $191,582.69.

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