Joe Trenton expects to retire in 15 years and has suddenly realized that he hasn’t saved anything toward that goal. After giving the matter some thought, he has decided that he would like to retire with enough money in savings to withdraw $85,000 per year for 25 years after he retires. Assume a 6% return on investment before and after retirement and that all payments into and withdrawals from savings are at year end.
a. How much does Joe have to save in each year for the next 15 years to reach this goal?
b. How much would Joe have needed to save each year if he had started when retirement was 25 years away?
c. Comment on the difference between the results of parts a and b.