You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to withdraw $220,000 per year for the next 30 years (based on family history, y think you will live to age 70). You plan to save by making 20 equal annual installments (from age 20 to age 40) into a fairly risky investment fund that you expect will earn 12% per year. You will leave th money in this fund until it is completely depleted when you are 70 years old. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) Read the requirements. CIE Requirement 1. How much money must you accumulate by retirement to make your plan work? (Hint: Find the present value of the $220,000 withdrawals.) (Round your final answer to the nearest whole dollar.) To make the plan work, you must accumulate this amount by retirement Requirement 2. How does this amount compare to the total amount you will withdraw from the investment during retirement? How can these numbers be so different? Over the course of your retirement you will be withdrawing However, by age 40 you only need to have invested These numbers are different because: OA. You need to have the same amount accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement. OB. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every year-the balance remains invested where it continues to earn
You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to withdraw $220,000 per year for the next 30 years (based on family history, y think you will live to age 70). You plan to save by making 20 equal annual installments (from age 20 to age 40) into a fairly risky investment fund that you expect will earn 12% per year. You will leave th money in this fund until it is completely depleted when you are 70 years old. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) Read the requirements. CIE Requirement 1. How much money must you accumulate by retirement to make your plan work? (Hint: Find the present value of the $220,000 withdrawals.) (Round your final answer to the nearest whole dollar.) To make the plan work, you must accumulate this amount by retirement Requirement 2. How does this amount compare to the total amount you will withdraw from the investment during retirement? How can these numbers be so different? Over the course of your retirement you will be withdrawing However, by age 40 you only need to have invested These numbers are different because: OA. You need to have the same amount accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement. OB. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every year-the balance remains invested where it continues to earn
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 35P
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Transcribed Image Text:You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to withdraw $220,000 per year for the next 30 years (based on family history, you
think you will live to age 70). You plan to save by making 20 equal annual installments (from age 20 to age 40) into a fairly risky investment fund that you expect will earn 12% per year. You will leave the
money in this fund until it is completely depleted when you are 70 years old.
(Click the icon to view Present Value of $1 table.)
(Click the icon to view Present Value of Ordinary Annuity of $1 table.)
(Click the icon to view Future Value of Ordinary Annuity of $1 table.)
(Click the icon to view Future Value of $1 table.)
Read the requirements.
Requirement 1. How much money must you accumulate by retirement to make your plan work? (Hint: Find the present value of the $220,000 withdrawals.) (Round your final answer to the nearest
whole dollar.)
To make the plan work, you must accumulate this amount by retirement
Requirement 2. How does this amount compare to the total amount you will withdraw from the investment during retirement? How can these numbers be so different?
Over the course of your retirement you will be withdrawing
However, by age 40 you only need to have invested
These numbers are different because:
OA. You need to have the same amount accumulated as you will withdraw because you will not earn further interest on your investment when you reach retirement.
OB. You need to have far less accumulated than what you will withdraw because you only withdraw a portion of the investment every year the balance remains invested where it continues to earn
12% interest.
OC. You need to have far more accumulated than what you will withdraw because you will withdraw a large portion of the investment every year the balance remains invested where it continues to
earn 12% interest.
OD. None of the above
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