Ms. Smith plans to retire in 25 years (she will be 65). The IRS longevity table forecasts that Ms. Smith will live to be 85 years old. Ms. Smith is expected to have 20 years in retirement. Ms. Smith needs to be able to withdraw $60,000 annually (end of each year) from her retirement investment account before the balance is fully used. This plus her $35,000 annually in social security benefits will serve her needs (she believes). During her 20 years in retirement Ms. Smith expects the average annual compounded rate of return on her invested monies to be 5%. For the 25 years getting to retirement Ms. Smith expects her retirement investment account to earn an average annual compounded rate of return of 7%.

Please answer the following. Use the data as it is written above.

1. How much must the balance of the retirement investment account be when Ms. Smith retires so that she can withdraw $60,000 annually (20 withdrawals), at the end of each year, before the account balance is fully used?

2. How much must Ms. Smith invest each year for the 25 years leading up to the retirement date so that the account accumulates the needed amount by the time that retirement begins?

Answer rating: 100% (QA)

1 We need to find out the present values of the 20 withdrawals that Ms Smith will make The calculati... View the full answer