On January 1, Bob just reached age 30. He earned $90,000 at the end of last year.
Question:
On January 1, Bob just reached age 30. He earned $90,000 at the end of last year. It is assumed that his salary will grow at 1% each year and is paid at the end of each year. Bob would like to retire when he reaches 65 (35 years from today) and expects to live 22 years after retirement. After some basic analysis, you estimate that wage replacement ratio will be 80%. After retirement, the retirement need will grow by inflation rate 2% per year and is paid at the beginning of each year. The investment return (discount rate) is 8%.
(a). What's the amount of first year retirement need?
(b). What’s the present value of all future retirement needs after retirement at age 65, assuming that he needs the retirement funding at the beginning of each year in retirement? (please show your inputs such as N, PMT, and etc.)
(c). How much is the present value of all retirement needs as of today ?
(d).What is the present value of all his future earnings as of today? Assuming all salaries are paid at the end of each year.
(e). Based on the results in (c) and (d) , what should be his annual saving rate to meet the retirement needs?
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen