Make equal annual contribution to your retirement savings

Assignment Help Financial Management

Reference no: EM131563900

Assume that you are now 35 years old, yesterday was your birthday. You plan to retire in 30 years at age 65, you expect to live an additional 25 years after you retire.

You want your first retirement payment to be made on the first day that you retire (i.e. the day after your 65th birthday) and you'll receive an equal payment each subsequent year on the same date. You want the value of the first payment received to be equal to the buying power of $55,000 today (do not let retirement payments grow).

Retirement income begins the day after you retire (30 years from today), and you will receive 24 additional payments after your first payment. Inflation is expected to be 5% per year. You have $150,000 saved today, this savings is in an account with an annual interest of 8% (compounding annually). You expect this rate to remain constant.

You want to make equal annual contribution to your retirement savings starting one year from today.

How much must you save each year to reach your goal?

How much money will be in your account on your 65th birthday (assume you make your last contribution that day and you have not yet made your first withdrawal)

What will the annual retirement payments (income received during retirement) be?

Reference no: EM131563900

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