H.Cornerstone
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Hey cag, if anyone could give me some help on this question, I would really appreciate it, we have to use excel to do it:
1. After realizing that social security may not exist by the time you retire, you decide it is time to get to work on retirement saving. As an ASU graduate you will make $50,000 this year before taxes. You will begin investing at the end of this year, but you will not get your first raise until next year. You expect your salary to grow at 4 percent annually until you retire in 45 years. In retirement you believe you will need 80 percent of your final pre-retirement salary to live comfortably. This amount will need to grow at 3 percent annually to keep up with inflation (the first inflation adjustment will occur the year you retire). Due to rising life expectancies, you believe you will need your income in retirement to last 30 years. You will spend your last dollar on the day you die. Funds that you save can be invested in a mutual fund earning 7 percent annually. (Assume all cash flows occur at the end of the year.)
a. What percent of your salary do you need to invest annually to live comfortably in retirement? (Assume that you invest the same percent every year.)
b. If you wait an extra ten years to start investing, what percent of your salary will you need to invest? (Assume that you must retire at the same age.)
I know that my final year salary in year 45 is 292,058.78 and 80 percent of that is 233,647.03, and if you adjust that for 30 years with 3% inflation, that comes out to be 567,122.67. Now, the problem I have is I have no idea what to do from here in order to determine the percentage that I need to take out each year. If I didn't need to account for the 7% that I gain every year, it would be simple, but it is not.
Any help or ideas would be great appreciated.
1. After realizing that social security may not exist by the time you retire, you decide it is time to get to work on retirement saving. As an ASU graduate you will make $50,000 this year before taxes. You will begin investing at the end of this year, but you will not get your first raise until next year. You expect your salary to grow at 4 percent annually until you retire in 45 years. In retirement you believe you will need 80 percent of your final pre-retirement salary to live comfortably. This amount will need to grow at 3 percent annually to keep up with inflation (the first inflation adjustment will occur the year you retire). Due to rising life expectancies, you believe you will need your income in retirement to last 30 years. You will spend your last dollar on the day you die. Funds that you save can be invested in a mutual fund earning 7 percent annually. (Assume all cash flows occur at the end of the year.)
a. What percent of your salary do you need to invest annually to live comfortably in retirement? (Assume that you invest the same percent every year.)
b. If you wait an extra ten years to start investing, what percent of your salary will you need to invest? (Assume that you must retire at the same age.)
I know that my final year salary in year 45 is 292,058.78 and 80 percent of that is 233,647.03, and if you adjust that for 30 years with 3% inflation, that comes out to be 567,122.67. Now, the problem I have is I have no idea what to do from here in order to determine the percentage that I need to take out each year. If I didn't need to account for the 7% that I gain every year, it would be simple, but it is not.
Any help or ideas would be great appreciated.