Question

You are trying to decide how much to save for retirement. Assume you plan to save

$ 7 comma 000$7,000

per year with the first investment made one year from now. You think you can earn

8.08.0​%

per year on your investments and you plan to retire in  

3636

​years, immediately after making your last

$ 7 comma 000$7,000

investment.

a. How much will you have in your retirement account on the day you​ retire?

b.​ If, instead of investing

$ 7 comma 000$7,000

per​ year, you wanted to make one​ lump-sum investment today for your retirement that will result in the same retirement​ saving, how much would that lump sum need to​ be?c. If you hope to live for

2929

years in​ retirement, how much can you withdraw every year in retirement​ (starting one year after​ retirement) so that you will just exhaust your savings with the

2929th

withdrawal​ (assume your savings will continue to earn

8.08.0​%

in​ retirement)?d.​ If, instead, you decide to withdraw

$ 262 comma 000$262,000

per year in retirement​ (again with the first withdrawal one year after​ retiring), how many years will it take until you exhaust your​ savings? (Use​ trial-and-error, a financial​ calculator: solve for​ "N", or​ Excel: function​ NPER)e. Assuming the most you can afford to save is

$ 1 comma 400$1,400

per​ year, but you want to retire with

$ 1 comma 000 comma 000$1,000,000

in your investment​ account, how high of a return do you need to earn on your​ investments? (Use​ trial-and-error, a financial​ calculator: solve for the interest​ rate, or​ Excel: function​ RATE)

a. How much will you have in your retirement account on the day you​ retire?

The amount in the retirement account in

3636

years would be

​$1,309,715.041,309,715.04.

​(Round to the nearest​ cent.)b.​ If, instead of investing

$ 7 comma 000$7,000

per​ year, you wanted to make one​ lump-sum investment today for your retirement that will result in the same retirement​ saving, how much would that lump sum need to​ be?You will need to make one lump sum investment today of

​$82,020.3582,020.35.

​(Round to the nearest​ cent.)c. If you hope to live for

2929

years in​ retirement, how much can you withdraw every year in retirement​ (starting one year after​ retirement) so that you will just exhaust your savings with the

2929th

withdrawal​ (assume your savings will continue to earn

8.08.0​%

in​ retirement)?The amount you can withdraw every year in retirement is

​$117,374.74117,374.74.

​(Round to the nearest​ cent.)d.​ If, instead, you decide to withdraw

$ 262 comma 000$262,000

per year in retirement​ (again with the first withdrawal one year after​ retiring), how many years will it take until you exhaust your​ savings? (Use​ trial-and-error, a financial​ calculator: solve for​ "N", or​ Excel: function​ NPER)You will exhaust your savings in

nothing

years.  ​(Round to two decimal​ places.)

Answer 1

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