A. As a financial advisor you have a high wealth client who is thinking about making some life changes. Sono is 40 (today is his birthday), and he want to retire at 60. He wants to put away the same amount of money every birthday (starting today) up to and including his 60th birthday. He then wants to be able to withdraw ¥8 million in today's dollars every birthday (starting with his 61st) up to and including his 85th birthday. He believes he can earn an average annual return of 9.0% by investing in higher risk investments over the next twenty years, but will put it in a lower risk portfolio on retirement - which he thinks will earn 7%. Inflation is expected to average 1% over the following 25 years
a. Ignoring taxes, how much does Sono need to save each year to achieve this objective?
b. As Sono's advisor you note that Japan has amongst the highest life expectancy in the world, and the average expectancy for males is 80.5 years? You suggest to Sono that he will spend less as he gets older is unlikely to need ¥8 million a year for living from the age of 75 on - and advise that it would be more like ¥5 million. In this, case what would Sono's revised annual saving need to be.