It is December 31, 2018 and 35-year-old Trump is reviewing his retirement savings and planning for retirement at age 60. He currently has N$55 000 saved (which includes the deposit he just made today) and he invests N$2 000 per year (at the end of the year) in a retirement account that earns about 10% annually. He has decided that he is comfortable living on N$ 40,000 per year (in today’s dollars) and believes that he can continue to live on that amount as long as it is adjusted annually for inflation. Inflation is expected to average 3% per year for the foreseeable future. After researching information on average life expectancy for males of his background, his plan will assume that he lives to age 88. He will withdraw the amount needed for each year during retirement at the beginning of the year. So, on December 31 at age 60, he will make the last deposit of N$2 000 and the following day (January 1) he will withdraw his first instalment for retirement. Assume that the investment will earn 10%.

REQUIRED 

a) If Trump continues with his current plan, will he be able to accomplish it? Justify your answer with appropriate and detailed workings. Work to the nearest N$.

b) How would the situation change if Trump was to start placing his N$2 000 annual savings into the retirement account on January 1st rather than December 31 of each year?
Assume that the retirement still pays interest at the end of each year 1

c) If Trump resumes making his deposits at the end of the year, how much will he have to save each year to accomplish his objective?

d) If Trump wishes to leave a N$50 000 perpetuity to his alma mater, starting one year from the year he turns 88, then how much extra money would he need to have on December 31 of the year he turns 88? 

Answer rating: 100% (QA)

a We need to calculate the amount available for Trump at retirement and the amount he would need for retirement Trump makes savings for retirement ove... View the full answer