Question

Do the following question on a worksheet entitled ”Loan”. You have just turned 21 and start to make plans for your future retirement (it is never too early). You would like to retire at 55 and enjoy the life. To do so, you understand that you have to plan to start saving ASAP. You want to be able to F2019 Econ 311 Assignment 2 Page 5 withdraw $24,000 annually starting with your 56th birthday and ending with your 75th birthday, when the last pension payment should exhaust you savings account. You plan to invest your money in the local credit union, at an interest rate of 5% per year.

1. Consider that you save equal amounts annually starting with your 22nd birthday and ending with your 55th birthday. What is the annual amount you should save to be able to make the desired withdrawals at your retirement?

2. Now suppose that you make the annual savings found in part a) until your 35th birthday. On your 35th birthday you inherit a large sum of money that allows you to make a lump sum deposit instead of the remaining annual savings. How much money should you save at this moment (at 35) instead of the remaining annual savings (between 35 and 55) to make sure that you will have the necessary savings for your retirement?

Answer 1