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8 Jan 2018

You are age 40, you wil invest $15,000 at end of year. You will do the same for 30 years. you will invest in securites with a return rate of 15% UP UNTIL age 70. You will live until 90 (20 years of retirement) During retirement you will move investment to a 5% return security. What equal amount can you pull from your retirement at the end of each year, such that your retirement fund will have a zero balance at death. ignore taxes.

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Lelia Lubowitz
Lelia LubowitzLv2
8 Jan 2018

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You are 41 years old today and want to plan for retirement at age 65. You want to set aside an equal amount every year from now to retirement. You expect to live to age 87 and want to withdraw a fixed amount each year during retirement that at age 65 will have the same purchasing power as $99,349 has today. You plan on withdrawing the money starting the day you retire. You have not saved any money for retirement. Inflation is assumed to be 4.0% in the future. You expect to earn an 8.5% return on your investments in the future. How much do you need to save each year until retirement to meet your goal?

Assume you are planning on your retirement today, you decide to invest part of your salary every month in your retirement account. Suppose you will retire when you are 67 years old, your life expectancy is 87 if you are male and 90 if you are female and the inflation rate will be 2.5% a year. For your retirement account the rate of return is 6.5% a year before you retire and after retirement, you will invest more conservatively and the rate of return will be 4.5% a year. To figure out how much you need to save in your retirement account a month before you retire, you ask yourself the following questions

1. Tell us you age today

2. You believe you will live comfortable today with $2,000 a month, how much do you need a month after you retire at 67? Assuming you will need the same amount during the retirement period

3. How much do you need when you are at 67 so you can withdraw the amount we discussed in the question 2 until the last day of your life?

4. Suppose your salary will increase 3% a year and your saving will also increase 3% a year, tell us how much do you need to save in the first month so you will have the same amount we calculated in question 3. (Hint suppose your saving will be increasing .5% a month)

5. Redo question 4 if you will start to save 10 years, instead of today, how much do you need to save in the first month?

Your sister turned 35 today, and she is planning to save $7,000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that's expected to provide a return of 7.5% per year. She plans to retire 30 years from today when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.

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