Question: Milhouse 22 is about to begin his career as a

Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Security in Time. The article indicated that the ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact, the number will drop to two workers for every retiree in 2040. Milhouse’s retirement plan allows him to make equal yearly contributions, and it pays 9 percent interest annually. Upon retirement, Milhouse plans to buy a new boat, which he estimates will cost him $300,000 in 43 years, which is when he plans to retire (at age 65). He also estimates that in order to live comfortably he will require a yearly income of $80,000 for each year after he retires. Based on his family history, Milhouse expects to live until age 80 (that is, he would like to receive 15 payments of $80,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum and place the remaining balance into an account that pays 6 percent interest, from which he will withdraw his $80,000 per year. If Milhouse’s first contribution is made one year from today, and his last is made the day he retires, how much money must he contribute each year to his retirement fund?

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  • CreatedOctober 31, 2014
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