Multiperiod Consumption-Saving Plan Assume a person is 35 years old and plans to retire at age 65. So s/he has 30 more years to work. Assume the following additional information apply: Annual (real) income = $40,000 Real interest rate = 5% Expected live after retirement = 20 years Desired retirement income = 75% of pre-retirement income = $30,000 Prepare lifetime consumption-savings schedule for the person. First calculate how much s/he should have at retirement in order to consume $30,000 per year for 20 more years. This is the PV of annuity of $30,000 over 20 years at interest rate of 5%. 30,000* (PVIFAs°20) = $373,866.31. This amount is also equal to the future value of what s/he should save over her/his remaining 30 working years. (Annual saving)* (FVIFAS9,30) = $373,866.31. Solve for annual saving and you will get $5,627.22
Multiperiod Consumption-Saving Plan
Assume a person is 35 years old and plans to retire at age 65.
So s/he has 30 more years to work.
Assume the following additional information apply:
Annual (real) income = $40,000
Real interest rate = 5%
Expected live after retirement = 20 years
Desired retirement income = 75% of pre-retirement income = $30,000
Prepare lifetime consumption-savings schedule for the person.
First calculate how much s/he should have at retirement in order to consume
$30,000 per year for 20 more years.
This is the PV of annuity of $30,000
over 20 years at interest rate of 5%.
30,000* (PVIFAs°20) = $373,866.31.
This amount is also equal to the
(Annual saving)* (FVIFAS9,30) = $373,866.31. Solve for annual saving and you will get $5,627.22.
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
