Charlotte is 22 years old, has just graduated from college, and is beginning her new job. She
Question:
Charlotte is 22 years old, has just graduated from college, and is beginning her new job. She
already has plans for her eventual retirement and will start saving right away with annual IRA
contributions. Her investments will earn 7.25%. She intends to retire early at age 62 after which
she conservatively estimates that her nest egg will earn 5.50%. The actuarial tables for her
demographic indicate a life expectancy of 87 years. She anticipates some one-time expenses as
she transitions into retirement - downsizing, relocating to a warm climate, etc. - and will need
an initial withdrawal of $125,000. During the rest of her retirement, she estimates that she will
need $75,000 per year to maintain a comfortable lifestyle.
How much must she contribute every year from now until retirement? It will be easier if you
first calculate how much she will need to have accumulated when she begins her retirement.
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips