Question
In: Economics
3.53 Two young couples (all about to turn 25 years old) are discussing how to enjoy...
3.53 Two young couples (all about to turn 25 years old) are discussing how to enjoy life. Couple X believes the best way is to sacrifice early in life and retire at a young age. Couple Y believes that you can have fun early in life and still retire at a relatively young age. Both couples plan to invest in the stock market, because they know that the average return over long periods of time is 10% per year without inflation considerations.
Couple X plans to invest $2500 per month (from one of their two salaries) in stocks for 15 years, and then stop investing, but let the account grow for the next 15 years, at which time they will be 55 years old. Couple Y plans to invest no money for the first 15 years, but will begin investing $2500 per month thereafter.
a. How much money will couple X have when they turn 55, if they did start investing 1 month after age 25?
b. How much money will couple Y have when they turn 55, if they started investing 1 month after they turned 40 years old?
c. If couple Y continues to invest $2500 per month beyond the age of 55, at what age will they be able to retire with the same amount of money as couple X?
d. How many extra years did couple Y have to invest $2500 per month to accumulate the same amount of money as couple X?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Case Background: A young couple, both 25 years old, are planning to retire in 40 years...
Case Background:
A young couple, both 25 years old, are planning to retire in 40
years at the age of 65. After they retire,
they expect to live for an additional 20 years, until age 85.
They plan to begin saving for retirement today
and based on information from their financial planner, they
think they will earn 8% on their investment
compounded annually. They think they will earn 5% on their
retirement savings after they retire.
Using the answer from...
Case narrative: A young couple, both 25 years old, are planning to retire in 40 years...
Case narrative:
A young couple, both 25 years old, are planning to retire in
40 years at the age of 65. After they retire, they expect to live
for an additional 20 years, until age 85. They plan to begin saving
for retirement today and based on information from their financial
planner, they think they will earn 8% on their investment
compounded annually. They think they will earn 5% on their
retirement savings after they retire.
1. If they begin...
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Consider the case of Mike. He is just about to turn 62 years of age and...
Consider the case of Mike. He is just about to turn 62 years of
age and he has come to you to
help him determine if/when he can retire. Mike has provided you
with the following
information:
His current earnings are $100,000 annually
He used a “Top Down” retirement assessment and determined that
his retirement cash needs
would be equal to his annual earnings less his FICA tax, his
mortgage of $1320/month, and
$5,000 per year of business/work related expense....
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