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In: Finance

Given the below pension assumptions (same as the previous question), answer the following question. Starting salary...

Given the below pension assumptions (same as the previous question), answer the following question.

Starting salary 77,000
Annual salary increase 2.00%
Years of employment 30
Vesting rate 1.75%
Return on investments 6.00%
Years of retirement 20

What is your anticipated retirement benefit each year?

Solutions

Expert Solution

Following is the given data:

Given data
Starting salary 77,000
Annual salary increase 2.00%
Years of employment 30
Vesting rate 1.75%
Return on investments 6.00%
Years of retirement 20

Now, we calculate the Retirement sum by first calculating the value of each year's contribution in Year 30 and then summing up all the investments, to find the total sum on retirement, in the following manner,

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Annual salary 77,000        78,540        80,111        81,713        83,347        85,014        86,715        88,449        90,218        92,022        93,863        95,740        97,655        99,608        1,01,600        1,03,632        1,05,704        1,07,819        1,09,975        1,12,174        1,14,418        1,16,706        1,19,040        1,21,421        1,23,850        1,26,327        1,28,853        1,31,430        1,34,059        1,36,740
Amount vested            1,348          1,374          1,402          1,430          1,459          1,488          1,518          1,548          1,579          1,610          1,643          1,675          1,709          1,743             1,778             1,814             1,850             1,887             1,925             1,963             2,002             2,042             2,083             2,125             2,167             2,211             2,255             2,300             2,346             2,393
Value at retirement            7,301          7,026          6,761          6,506          6,260          6,024          5,796          5,578          5,367          5,165          4,970          4,782          4,602          4,428             4,261             4,100             3,946             3,797             3,653             3,516             3,383             3,255             3,132             3,014             2,900             2,791             2,686             2,584             2,487             2,393
Total sum on retirement       1,32,464

Lastly, we calculate the annuity payment for 20 years of retirement, in the following manner:

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Yearly annuity payment          11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549        11,549           11,549           11,549           11,549           11,549           11,549           11,549

jeff jeffy answered 1 year ago
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