Question

Your client is 27 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $2,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 8% 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)

Future Value Annuity =

r = 0.08

n = 38

=

= 440631.890766

b)

Future Value Annuity =

r = 0.08

n = 43

=

= 659166.01055

c)

If she retires at 65

Present Value Annuity =

where r is the rate of Return for compounding period = 8%

n is the no of compounding period 20 years

440631.890766 =

440631.890766 = Periodic Payment * 9.81814740812

Periodic Payment = 440631.890766 / 9.81814740812

Periodic Payment = 44879.34

If she retires at 70

Present Value Annuity =

where r is the rate of Return for compounding period = 8%

n is the no of compounding period 15 years

659166.01055 =

659166.01055 = Periodic Payment * 8.5594786885

Periodic Payment = 659166.01055 / 8.5594786885

Periodic Payment = 77010.10