Question

In: Accounting

Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will...

Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will need $50,000 in the first year of her retirement, and this post-retirement expenditure will increase at the rate of inflation of 2% per year. Based on her family history, she does not expect to live beyond the age of 90. After retirement, she will invest her money in bank deposits with an expected rate of return of 4% per year. Her post-retirement marginal tax rate is 30%.

Required:

  1. How much money will she need at age 65 to finance her post-retirement life style? Assume that all annual expenditure occurs at the beginning of the year.
  2. She plans to achieve the goal in (a) by saving annually, starting at the end of the first year. She will increase her annual savings at the rate of 5% per year. If she can earn 6% before tax and her appropriate tax rate is 30%, how much must she invest this coming year?

Solutions

Expert Solution

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will...
Cathy Kung, 25, plans to retire at the age of 65. She estimates that she will need $50,000 in the first year of her retirement, and this post-retirement expenditure will increase at the rate of inflation of 2% per year. Based on her family history, she does not expect to live beyond the age of 90. After retirement, she will invest her money in bank deposits with an expected rate of return of 4% per year. Her post-retirement marginal tax...
Marcia, age 56, is starting to think about retirement. She plans to retire at age 65...
Marcia, age 56, is starting to think about retirement. She plans to retire at age 65 and she expects to liver to age 90. She estimates that she will need $50,000 per year, before tax in retirement to give her the lifestyle she wants. She will receive a non-indexed pension of $25,000 a year plus a combined $12,000 per year in CPP and OAS retirement income. She currently has $70,000 in her RRSP. For planning purposes, Marcia is using a...
Uma turned 25 today, that she plans to retire on her 65 th birthday , and...
Uma turned 25 today, that she plans to retire on her 65 th birthday , and that s he expects to live until her 8 0 th birthday . On her 65th birthday, she wants $ 90,000 and wants that amount to increase by 2 % every year until h er 80th birthday. In other words, she wants to make a withdrawal from her 65th birthday until her 80 th ( including her 80th birthday ). So far, she has...
Ms. Smith plans to retire in 25 years (she will be 65). The IRS longevity table...
Ms. Smith plans to retire in 25 years (she will be 65). The IRS longevity table forecasts that Ms. Smith will live to be 85 years old. Ms. Smith is expected to have 20 years in retirement. Ms. Smith needs to be able to withdraw $60,000 annually (end of each year) from her retirement investment account before the balance is fully used. This plus her $35,000 annually in social security benefits will serve her needs (she believes). During her 20...
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65)....
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65). She has retirement savings in a mutual fund account, which has a current balance of $150,000 (Ann does not plan to add any additional money to this account).  Also, Ann opened a 401K retirement account with her new employer and will contribute $15,000 per year into her 401K until retirement.   If Ann’s mutual fund account grows at an annual rate of 8.0% how much money...
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65)....
Ann E. Belle is age 45 and plans to retire in 20 years (at age 65). She has retirement savings in a mutual fund account, which has a current balance of $150,000 (Ann does not plan to add any additional money to this account). Also, Ann opened a 401K retirement account with her new employer and will contribute $15,000 per year into her 401K until retirement. solve question algebraically and show work. 1.)If Ann’s 401K account grows at an annual...
1. George is currently 30 years old, plans to retire at the age of 65 and...
1. George is currently 30 years old, plans to retire at the age of 65 and to live to the age of 85. His labor income is $25,000 per year, and he intends to maintain a constant level of real consumption spending over the next 55 years. Assume no taxes, no growth in real salary, and a real interest rate of 3% per year. a. What is the value of George’s human capital? b. What is his permanent income? c....
a. You are currently 25 and plan to retire at age 65. You think you will...
a. You are currently 25 and plan to retire at age 65. You think you will need $150,000 per year during your retirement years. You assume that you will live until age 90. You also want to leave $1,000,000 to Wingate University when you die at age 90. You expect to get a 6% rate on your investments. How much do you need to have in your account at retirement? If you start saving now at age 25, how much...
Rick is currently 35 years old. He plans to retire at age 65 and hopes to...
Rick is currently 35 years old. He plans to retire at age 65 and hopes to live to age 85. His labour income is $50,000 per year, and he intends to maintain a constant level of real consumption spending over the next 50 years. Assuming a real interest rate of 3% per year, no taxes, and no growth in real labour income, what is the value of Rick’s human capital? ****I would like this broken down step by step, and...
Today is Sofia’s 35th birthday. She plans to retire in 32 years at the age of...
Today is Sofia’s 35th birthday. She plans to retire in 32 years at the age of 67, with expected life expectancy of 30 years after that. To maintain her life style, she thinks she will have to withdraw $8,000 from retirement account at the beginning of each month during retirement. Meanwhile, she plans to donate $100 to charity starting on her 70th birthday, and the monthly payment will continue till she passes away. In addition, she would like to establish...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT