Reference no: EM132792367
You plan to save for retirement by making annual deposits into a savings account. There will be two time periods, one after the other, one for savings and one for withdrawals as follows:
Period 1, from time 1 through time 30, annual deposits
Period 2, from time 31 through time 60, annual withdrawals
The deposits will be put into a stock fund, with an expected annual growth rate of 11%.
Inflation is expected to be 2.8% per year throughout the two time periods.
You wish the annual withdrawals to be equivalent to $40,000 (each year), in today's purchasing power.
Problem 1: Determine a savings plan that will enable you to achieve this, such that the last withdrawal leaves a zero account balance.