Question

Yuse and Yal want to save money for retirement. They also love to travel. They graduated from college some time ago, but are just now thinking of getting around to saving for retirement. They want to be able to spend $50,000 per year in retirement in addition to what Social Security pays. They also want to have $500,000 left at the end to pass along to their family. They figure to travel for five years, then have a couple of children and contribute to a retirement fund for the 22 years the kids are growing up, and then travel for five more years using money saved outside of the retirement plan.. They will make no contributions in the years they are travelling. After that they plan to live in retirement for 25 years and then die. They figure on an average return of 8% before retirement and 6% after that. Ignore the effects of inflation. How much do Yus and Yal have to invest for each of the twenty productive years?

Answer 1

* Above question is solved basis assumption that investment in retirement fund shall be made for a period of 20 years (that is, two years of child birth shall also have 0 investment)

Annual contribution for each of the 20 years = $11,238.47

The above question needs to be solved in 3 parts:

1. Value of fund at the start of retirement

2. Value of fund at start of last travel period

3. Value of annual contribution for each of the 20 years