Question

34. Suppose you are fresh out of college and plan to immediately start working and retire in 40 years, after which you plan to live for another 20 years after retirement. Assuming that the interest rate from now until the end of retirement will average about 5% and that your income before retirement will likely be about $80,000 per year, how much should you save annually between now and retirement:

a. If you want to replace about 75% of your pre-retirement income after retirement?

b. If you want to spend the same amount of money after retirement as you did before retirement?

c.The present value of one’s future labor income is called_____.

Answer 1

1-	present value of sum required to get 60000 for next 20 Years	annuity value*PVAF at 5% for 20 Years	60000*12.4622	747732
	value of Income after retirement	75% of 80000	60000
	PVAF at 5% for 20 Years	1-(1+r)^-n /r	1-(1.05)^-20 /5%	.623110/5%	12.4622
	How much you save annualy	Future value at the time of retirement/FVAF at 5% for 40 Years	747732/120.798	6189.94
	Future value of Investment at the time of retirement	75% of 80000	747732
	FVAF at 5% for 40 Years	(1+r)^n -1 /r	1.05^40 -1 / 5%	6.0399/5%	120.798
2-	present value of sum required to get 80000 for next 20 Years	annuity value*PVAF at 5% for 20 Years	80000*12.4622	996976
	value of Income after retirement		80000
	PVAF at 5% for 20 Years	1-(1+r)^-n /r	1-(1.05)^-20 /5%	.623110/5%	12.4622
	How much you save annualy	Future value at the time of retirement/FVAF at 5% for 40 Years	996976/120.798	8253.25
	Future value of Investment at the time of retirement	75% of 80000	996976
	FVAF at 5% for 40 Years	(1+r)^n -1 /r	1.05^40 -1 / 5%	6.0399/5%	120.798
3-	sum of present value of future income or cash flow