Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Security in Newsweek, where he saw that the ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact, the ratio was 8.6 workers for every retiree in 1955; today the ratio is 3.3, and it will drop to 2 workers for every retiree in 2040. Milhouse's retirement plan pays 9 percent interest annually and allows him to make equal yearly contributions. Upon retirement Milhouse plans to buy a new boat, which he estimates will cost him $300,000 in 43 years (he plans to retire at age 65). He also estimates that in order to live comfortably he will require a yearly income of $80,000 for each year after he retires. Based on family history, Milhouse expects to live until age 80 (that is, he would like to receive 15 payments of $80,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum and place the remaining balance into an account, which also pays 9% interest, from which he will draw his $80,000 per year. If Milhouse's first contribution is made 1 year from today, and his last is made the day he retires, how much money must he contribute each year to his retirement fund? [Hint: Making a timeline is always a useful first step.]
Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his inspiration came from reading an article on Social Security in Newsweek, where he saw that the ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact, the ratio was 8.6 workers for every retiree in 1955; today the ratio is 3.3, and it will drop to 2 workers for every retiree in 2040. Milhouse's retirement plan pays 9 percent interest annually and allows him to make equal yearly contributions. Upon retirement Milhouse plans to buy a new boat, which he estimates will cost him $300,000 in 43 years (he plans to retire at age 65). He also estimates that in order to live comfortably he will require a yearly income of $80,000 for each year after he retires. Based on family history, Milhouse expects to live until age 80 (that is, he would like to receive 15 payments of $80,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum and place the remaining balance into an account, which also pays 9% interest, from which he will draw his $80,000 per year. If Milhouse's first contribution is made 1 year from today, and his last is made the day he retires, how much money must he contribute each year to his retirement fund? [Hint: Making a timeline is always a useful first step.]
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket
scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his
inspiration came from reading an article on Social Security in Newsweek, where he saw that the
ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact,
the ratio was 8.6 workers for every retiree in 1955; today the ratio is 3.3, and it will drop to 2
workers for every retiree in 2040.
Milhouse's retirement plan pays 9 percent interest annually and allows him to make equal yearly
contributions. Upon retirement Milhouse plans to buy a new boat, which he estimates will cost him
$300,000 in 43 years (he plans to retire at age 65). He also estimates that in order to live
comfortably he will require a yearly income of $80,000 for each year after he retires. Based on
family history, Milhouse expects to live until age 80 (that is, he would like to receive 15 payments of
$80,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum
and place the remaining balance into an account, which also pays 9% interest, from which he will
draw his $80,000 per year. If Milhouse's first contribution is made 1 year from today, and his last is
made the day he retires, how much money must he contribute each year to his retirement fund?
[Hint: Making a timeline is always a useful first step.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F70a03515-c043-436b-8f0e-233f33588c95%2Fa9c82aad-0773-4800-9cec-4c3769b588ec%2Fl9qi5wxf_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Milhouse, 22, is about to begin his career as a rocket scientist for a NASA contractor. Being a rocket
scientist, Milhouse knows that he should begin saving for retirement immediately. Part of his
inspiration came from reading an article on Social Security in Newsweek, where he saw that the
ratio of workers paying taxes to retirees collecting checks will drop dramatically in the future. In fact,
the ratio was 8.6 workers for every retiree in 1955; today the ratio is 3.3, and it will drop to 2
workers for every retiree in 2040.
Milhouse's retirement plan pays 9 percent interest annually and allows him to make equal yearly
contributions. Upon retirement Milhouse plans to buy a new boat, which he estimates will cost him
$300,000 in 43 years (he plans to retire at age 65). He also estimates that in order to live
comfortably he will require a yearly income of $80,000 for each year after he retires. Based on
family history, Milhouse expects to live until age 80 (that is, he would like to receive 15 payments of
$80,000 at the end of each year). When he retires, Milhouse will purchase his boat in one lump sum
and place the remaining balance into an account, which also pays 9% interest, from which he will
draw his $80,000 per year. If Milhouse's first contribution is made 1 year from today, and his last is
made the day he retires, how much money must he contribute each year to his retirement fund?
[Hint: Making a timeline is always a useful first step.]
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