Question

9. INPUT INTO TEMPLATE:

I hope to have $10,000 of retirement savings in the bank by age 30.

I hope to earn $34,320 per year when I’m 30.

I hope to earn $38,480 per year when I’m 40.

I hope to earn $42,640 per year when I’m 50.

I hope to earn $46,800 per year when I’m 60.

10. I PROMISE that I WILL SAVE 15% of that salary each year, and I expect to retire at age 65.

I promise.

11. If my life expectancy is age 85, my retirement years will total __.

12. SHOW WORK IN THE TEMPLATE:

Assume I invest 15% of my salary annually based upon the above salaries at a savings rate of 6.5% compounded annually.

At retirement age, my nest egg (including the retirement funds I had saved by age 30) would total: $_______________________ (from Excel template)

13. SHOW WORK IN THE TEMPLATE: Based on the amount of funds in your retirement account (question #12), how much can you withdraw each year during retirement? In other words, what is your annual annuity? $_______________________ (from Excel template)

I need help with 11, 12, & 13! Thank you!

Answer 1

11). If retirement age is 65 and life expectancy is 85, then number of retirement years are 85 - 65 = 20 years.

12).

Formula	Age-group	Duration (N)	Salary/year	Amount saved (15% of salary)	FV annuity (at the end of the next N years at 6.5% interest)	FV of the lump sum annuities till age 65
Savings at age 30, compounded for (65-30) years at 6.5% p.a.	30			10,000		90,622.55
	30-39	10	34,320	5,148	69,469.29	3,35,376.82
	40-49	10	38,480	5,772	77,889.81	2,00,320.20
	50-59	10	42,640	6,396	86,310.33	1,18,252.63
	60-65	5	46,800	7,020	39,969.36	39,969.36
					Total	7,84,541.55

Note: For one salary bracket, calculate the lump sum collected till the time you earn that salary and then using that as the present value, calculate its lump sum future value at age 65. So, for example, from age 30-39, saving 5,148 per month at 6.5% interest gives a value of 69,469.29 by age 40. Taking this as present value, compute its future value at age 65,.ie. after 25 years.

By age 65, the retirement fund has $784,541.55

13). For annual annuity amount for the next 20 years, PV = 784,541.55; I = 6.5%; N = 20, solve for PMT.

PMT = $71,202.16