Question

This is a personal financial planning problem that includes both retirement for your client and college tuition for one student, your client's child.

Your client has the following characteristics:

Current age: 24 yrs

Retirement age: 67 yrs

Expected lifetime: 95 yrs

Desired pension: 60,000 usd/yr

Child's current age: 3 yrs

Will attend college starting at age: 19 yrs

Will complete college starting at age 23 yrs

Tuition: 15,000 usd/yr for 4 yrs

Rate of return: 5.00%

Calculate the annual payments that your client will need to make in order to meet both goals at the correct time.

Answer 1

Personal Financial Planning:

Client Reuirement :

Period = 67years - 24Years =43 Years.

Pension = 60000 usd/yr

Rate of Return = 5 %

Calculation:

FV = R [(1+ i)n -1] / i
FV: Future value of annuity or desired corpus;
R: Periodic investment required;
n: Investment tenure;
i: Interest rate

FVA= R [(1+ i)^n -1] / i]

60000=R [(1+.05)^43-1/0.05]

R=$ 419.6 Required Annual Investment to achieve Retirement of $60000

Client's child Reuirement :

Tuition: 15,000 usd/yr for 4 yrs

FVA= R [(1+ i)^n -1] / i]

15000=R [(1+.05)^4-1/0.05]

R= 3480 Annual Investment Should be done

Total Annual Payment to Meet both goal = 419.6 + 3480

   = 3899.88

   =$3900