Quantitative Problem 2: You and your wife are making plans for retirement. You p
ID: 2806219 • Letter: Q
Question
Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have 85,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement account will earn 10% annually a. Whal amount do you need in your relirement account he day you relire? Round your answer lo lhe nearest cent. Do nol round inlermediale caleulations. ·Assume that your first withdrawal will be made he da vou retire, nder this assumption, what amount do you now need in our retirement account the day ou retire ound your answer to the nears cent. Do not round intermediate calculations.Explanation / Answer
A)Amount in retirement account on date of retirement =PVA 10%,25* Annua withdrawal
= 9.07704 * 85000
= $ 771,548.40
*** PVA10%,25 : [1/(1+.1)^1+1/(1+.1)^2+1/(1+.1)^3+.......+1/(1+.1)^25]
or find it from present value annuity table at 10% for 25 years (end of year payment)
2)Amount in retirement account = PVA 10% 25 * Annual withdrawl
= 9.98474*85000
= $ 848,702.90
*** PVA10%,25 : [1+ 1/(1+.1)^1+1/(1+.1)^2+1/(1+.1)^3+.......+1/(1+.1)^24]
or find it from present value annuity table at 10% for 25 years (beginning of annuity payment)