Retirement plans


Question: Today is January 1 & an individual is currently thirty years old. She made 93,000 dollars last year & she estimates she will need 75 percent of her current income in today's dollars to live on when she retires. She believes that inflation will average about 3.6% per year during her working years. [For simplicity we will ignore inflation during her retirement years]. She will retire at age 65 & will begin drawing down her retirement annuity at age 65.

[A]    How much money will she need to withdraw each year starting at age 65 to have the same purchasing power as today? [Give your answer to the nearest penny.]

[B]   She plans on making a total of twenty annual withdrawals after she retires. After she retires she believes she will be able to earn 5.9% per year. How much must she have at age 65 in orders to make her planned withdrawals? [Give your answer to the nearest penny.]

[C]   If she puts her money in a blended stock & bond portfolio now, she figures she can earn 11% per year until she retires. How much should she save per year starting right now in order to have the retirement annuity she desires? [Give your answer to the nearest penny.]

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Finance Basics: Retirement plans
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