a-1. With a 3% inflation rate (Spreadsheet 21.2), by how much would your retirement annuity grow if you increase the savings rate by 1%? (Round your percentage answer to 2 decimal places.) Growth in retirement annuity_________%

a-2. Is the benefit greater in the face of inflation?

Yes or no

Required: With no taxes or inflation (Spreadsheet 21.1), what would be your retirement annuity if you increase the savings rate by 1%? (Do not round intermediate calculations and round your final answer to the nearest whole dollar.) Retirement annuity SPREADSHEET 21.1 The savings plan 1 2 3 4 5 9 19 29 39 40 1 2 3 4 5 39 40 A Retirement Years 25 Age 30 31 35 45 55 65 Total B Income Growth 0.07 Income 50,000 53,500 70,128 137,952 271,372 533,829 7,445,673 A B Retirement Years Income Growth 25 Age 30 31 65 Total 0.07 Income 50000 Savings Rate 0.15 Savings 7,500 8,025 10,519 20,693 40,706 80,074 1,116,851 Savings Rate 0.15 Savings =B4*$C$2 =B4*(1+$B$2) =B5*$C$2 =B38*(1+$B$2) =B39*$C$2 =SUM(B4:B39) =SUM(C4:C39) D ROR 0.06 Cumulative Savings 7,500 15,975 61,658 308,859 943,477 2,457,518 Retirement Annuity ROR 0.06 Cumulative Savings =C4 E Consumption 42,500 45,475 59,608 117,259 230,666 453,755 192,244 E Consumption =B4-C4 =D4*(1+$D$2)+C5 =B5-C5 =D38*(1+SD$2)+C39 =B39-C39 Retirement Annuity =PMT($D$2,$A$2,-$D$39,0,0) SPREADSHEET 21.2 A real retirement plan 1 2 3 4 5 9 19 29 39 40 1 2 3 4 5 39 40 A Retirement Years 25 Age 30 31 35 45 55 65 Total A Retirement Years 25 Age 30 31 65 Total B Income Growth 0.07 Income 50,000 53,500 70,128 137,952 271,372 533,829 7,445,673 B 0.07 Income Rate of Inflation 0.03 Deflator C Income Growth Rate of Inflation 0.03 Deflator 1.00 1.03 1 1.16 1.56 2.09 2.81 50000 =B4*(1+$B$2) =C4*(1+$C$2) |=B38*(1+$B$2) =C38*(1+$C$2) =SUM(B4:B39) D Savings Rate 0.15 Saving 7,500 8,025 10.519 20,693 40,706 80,074 1,116,851 E ROR 0.06 Cumulative Savings 7,500 15.975 61,658 308,859 943,477 2,457,518 Real Annuity D Savings Rate 0.15 Savings =B4*$D$2 =B5 $D$2 =B39*$D$2 =SUM(D4:D39) Real Annuity E ROR 0.06 Cumulative Savings =D4 =E4*(1+$E$2)+D5 =E38*(1+$ES2)+D39 F rROR 0.0291 rConsumption 42,500 44,150 51,419 75,264 110,167 161,257 49,668 F TROR =(E2-C2)/(1+C2) rConsumption |=(B4-D4)/C4 =(B5-D5)/C5 =(B39-D39)/C39 =PMT($F$2,$A$2,- $E$39/$C$39,0,0) Required: With no taxes or inflation (Spreadsheet 21.1), what would be your retirement annuity if you increase the savings rate by 1%? (Do not round intermediate calculations and round your final answer to the nearest whole dollar.) Retirement annuity SPREADSHEET 21.1 The savings plan 1 2 3 4 5 9 19 29 39 40 1 2 3 4 5 39 40 A Retirement Years 25 Age 30 31 35 45 55 65 Total B Income Growth 0.07 Income 50,000 53,500 70,128 137,952 271,372 533,829 7,445,673 A B Retirement Years Income Growth 25 Age 30 31 65 Total 0.07 Income 50000 Savings Rate 0.15 Savings 7,500 8,025 10,519 20,693 40,706 80,074 1,116,851 Savings Rate 0.15 Savings =B4*$C$2 =B4*(1+$B$2) =B5*$C$2 =B38*(1+$B$2) =B39*$C$2 =SUM(B4:B39) =SUM(C4:C39) D ROR 0.06 Cumulative Savings 7,500 15,975 61,658 308,859 943,477 2,457,518 Retirement Annuity ROR 0.06 Cumulative Savings =C4 E Consumption 42,500 45,475 59,608 117,259 230,666 453,755 192,244 E Consumption =B4-C4 =D4*(1+$D$2)+C5 =B5-C5 =D38*(1+SD$2)+C39 =B39-C39 Retirement Annuity =PMT($D$2,$A$2,-$D$39,0,0) SPREADSHEET 21.2 A real retirement plan 1 2 3 4 5 9 19 29 39 40 1 2 3 4 5 39 40 A Retirement Years 25 Age 30 31 35 45 55 65 Total A Retirement Years 25 Age 30 31 65 Total B Income Growth 0.07 Income 50,000 53,500 70,128 137,952 271,372 533,829 7,445,673 B 0.07 Income Rate of Inflation 0.03 Deflator C Income Growth Rate of Inflation 0.03 Deflator 1.00 1.03 1 1.16 1.56 2.09 2.81 50000 =B4*(1+$B$2) =C4*(1+$C$2) |=B38*(1+$B$2) =C38*(1+$C$2) =SUM(B4:B39) D Savings Rate 0.15 Saving 7,500 8,025 10.519 20,693 40,706 80,074 1,116,851 E ROR 0.06 Cumulative Savings 7,500 15.975 61,658 308,859 943,477 2,457,518 Real Annuity D Savings Rate 0.15 Savings =B4*$D$2 =B5 $D$2 =B39*$D$2 =SUM(D4:D39) Real Annuity E ROR 0.06 Cumulative Savings =D4 =E4*(1+$E$2)+D5 =E38*(1+$ES2)+D39 F rROR 0.0291 rConsumption 42,500 44,150 51,419 75,264 110,167 161,257 49,668 F TROR =(E2-C2)/(1+C2) rConsumption |=(B4-D4)/C4 =(B5-D5)/C5 =(B39-D39)/C39 =PMT($F$2,$A$2,- $E$39/$C$39,0,0)