Question

1. You would like to start saving for your retirement and are trying to figure out how much to save.   You estimate that you will need $350,000 per year for the 30 years you’ll be retired. In addition, you’d like to have an additional $85,000 in your fifth year of retirement to buy a boat (This money should be in addition to the $300k you are withdrawing). Assume that you plan to save an equal amount of money every year, starting next year for the 35 years you will be working (save in years 1-35, withdraw in years 36 -65, buy boat in year 41). Assume that you will earn 8% on your portfolio during the years you save, but only 5% for the years you are retired. How much do you need to save each year in equal amounts to meet this goal?

Answer 1

Amount required annually for 30 years					350000
Multipyl: Annuity pVF at 5% for 30 years					15.37245
Present value of cash inflows at the time of retirement					5380357.5
Add: Present value of cost of buy at the time of retirement					66599.71
		(85000* 0.783526)
Present value of inflows required at the time of retirement					5446957.2
Divide: Annuity FVF at 8% for 35 years					172.3168
Annual deposits to be made					31610.134