You want to start saving for retirement by opening an RRSP account. You have no savings yet but that's okay because you are still young. You plan to retire in 30 years. Upon retirement, you would like to be able to spend $120,000 a year for 20 years. You fund this spending by making beginning of month withdrawals that are the same amount (size) every month. The first withdrawal occurs once you begin your retirement in 30 years. The last withdrawal occurs at the beginning of the last month of your retirement horizon. How much do you need to deposit at the end of each month for the next 30 years in order to achieve your retirement objective? Your RRSP account pays 7.7% p.a. compounded semi-annually during both savings and retirement periods.

You want to start saving for retirement by opening an RRSP account. You have no savings yet but that's okay because you are still young. You plan to retire in 30 years. Upon retirement, you would like to be able to spend $120,000 a year for 20 years. You fund this spending by making beginning of month withdrawals that are the same amount (size) every month. The first withdrawal occurs once you begin your retirement in 30 years. The last withdrawal occurs at the beginning of the last month of your retirement horizon. How much do you need to deposit at the end of each month for the next 30 years in order to achieve your retirement objective? Your RRSP account pays 7.7% p.a. compounded semi-annually during both savings and retirement periods.

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

See similar textbooks

Similar questions

You want to save money for retirement. Your savings pattern is as follows: First 5 years: You save $2200 each year Next 14 years: In the óth year, you save $2100 and decrease your savings by $100 in each following year. How much money will you have when you retire at the end of 19 years, if the interest rate is 7% per year?
This is a classic retirement problem. A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retire- ment spending goals: Years until retirement: Amount to withdraw each year: Years to withdraw in retirement: Interest rate: 30 $90,000 20 8% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. a. If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?
A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals. Years until retirement: 30 Amount to withdraw each year: $120,000 Years to withdraw in retirement: 25 Interest rate: 7.5% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. Required: Now assume that the inflation rate is 3%. Consequently, when your friend retires she will want to withdraw $120,000 each year in today’s dollars. What amount is she planning to receive in year 31 (the end of her first year of retirement)? How much does she need to have in retirement at the end of year 30 in order to receive her retirement payments assuming that these retirement payments continue to increase at 3% per year throughout her retirement?…
You estimate that by the time you retire in 35 years, you will have accumulated savings of $2 million. If the interest rate is 8% and you live 15 years after retirement, what annual level of expenditure will those savings support? Unfortunately, inflation will eat into the value of your retirement income. Assume a 4% inflation rate and work out a spending program for your retirement that will allow you to increase your expenditure in line with inflation.
You opened a savings yesterday by depositing $10,000. You would like to be able to withdraw $2,000 per year for each of the next 4 years of college and still have $3,000 left in the account when you graduate. What interest rate does this account need to earn?
Use the following to answer the next two questions: You decide to be in saving for your retirement days. You begin with depositing $300 per month into a savings account that is earning 12% per year compounded monthly. You may deposit faithfully for 25 years at which time you'll retire. Your institution wants to keep your money and as an incentive begins paying 15% per year compounded monthly provided your delay, taking out any money for four years. After four years, you decide to begin withdrawing equal payments for the next 20 years. What are the equal monthly payments that you can withdraw if you want the account to last for 20 years?
You are trying to calculate how much money you should have at retirement. On your 60th birthday you will retire and immediately make your first withdrawal of $4,482.06. You plan to make 24 such withdrawals each year. You plan to continue withdrawing at that level and frequency until you are 90 years old. (Assume beginning of period withdrawals with the first withdrawal on your retirement date and no withdrawal on your final birthday.) During retirement your savings will earn only 3.5% per annum. How much do you have to have saved at retirement to fund these planned withdrawals?
You are planning to save for your retirement during the next 30 years. You want to be able to withdraw $120,000 from your savings account every year for the next 20 years after you retire. You plan to invest your savings in a local bank, which offers 8% APR compounded monthly, and make equal annual payments into this savings account. What amount should be deposited annually in this savings account in order to withdraw $120,000 every year after your retirement?
You have just turned 21 and you are planning for your retirement. You would like to retire at age 65 (44 years from now), at which time you will begin withdrawing funds from your retirement account. You would like to take a total of 26 withdrawals, with your first withdrawal of $150.000 at. Year 65, and your last withdrawal at Year 90 . In order to account for inflation, your withdrawals in Year 66 through Year 90 will increase by 4.0 percent each year (i.e., a growing annuity; the withdrawal for Year 66= $150,000⋅1.04=$156,000, etc.). You currently have $30.000 in your retirement account and believe that you can earn an effective annual rate of return of 7.84 percent over time. Given this information, determine how much you would have to deposit in your retirement account, each year, at Years 21 - 64 (a total of 44 deposits), in order for you to be able to meet your retirement goals
Suppose that you just turned 25, plan to retire at 65, and estimate that you will need $9,049 per month at the end of each month upon retirement for the next 30 years. How much do you need to contribute at the end of each month until you reach age 50? Assume your estimated return is 8.8% EAR, that you have $10,000 already invested, and the funds will continue to earn interest to age 65, even though you will not continue contributing after age 50.
Starting early, starting late. In this exercise, we consider the effects of starting early or late to save for retirement. Assume that each account considered has an APR of 6% compounded monthly. a. At age 20, you realize that even a modest start on saving for retirement is important. You begin depositing $50 each month into an account. What will be the value of your nest egg when you retire at age 65? b. Against expert advice, you begin your retirement program at age 40. You plan to retire at age 65. What monthly contributions do you need to make to match the nest egg from part a? c. Compare your answer to part b with the monthly deposit of $50 from part a. Also compare the total amount deposited in each case. d. Let's return to the situation in part a: At age 20, you begin depositing $50 each month into an account. Now suppose that at age 40, you finally get a job where your employer puts $400 per month into an account. You continue your $50 deposits, so from age 40 on, you have two…
Calculate the amount of money you would be saving for a month by no longer spending $10. Please show your work. If you were to retire at 65, find the number of years left for you to retire. Show calculations. If you were to invest the monthly savings (every month) in an account that gives you 7% interest compounded monthly, calculate the amount of money you would have in your retirement account (at age 65) by making this one change in your lifestyle. Show all the steps.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS