This case is a classic retirement problem. A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals.

Years until retirement: 30

Amount to withdraw each year: $95,000

Years to withdraw in retirement: 25

Interest rate: 8%

Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund.

Questions (Solve and Show appropriate formula function in Excel):

1. Suppose your friends employer will contribute to the account each year as part of the companys profit-sharing plan. In addition, your friend expects a distribution from a family trust several years from now. What amount must she deposit annually now to be able to make the desired withdrawals at retirement?

Employer's annual contribution: $1,750

Years until trust fund distribution: 25

Amount of trust fund distribution: $28,000

2. Go back and assume the basic information from part 1 above---no inheritance and no employer contributions. Now assume that the inflation rate is 2%. Consequently, when your friend retires she will want to withdraw $95,000 each year in todays dollars. What amount is she planning to receive in year 31 (the end of her first year of retirement)?