This is Graduate class ” ECONOMIC ENGINEERING ” CONS 4430
I need your assistance , ( PLEASE READ CAREFULLY )
I am a 30 years old person who is planning on retirement at age 67. I expect to die with dignity at age 90 (I already have contract to do that) and leave nothing to anyone. My definition of dignity is to be able to support myself financially without support from anyone (family) or any entity (government/social security/pension).
I seeking your advice for retirement planning; how much should I save each month, how much should I have when I retire, and how much should I spend each month during retirements. I currently earn $72K/year.
Please make the necessary assumptions to answer the above questions explaining the time value of money.
the following are my classmate responses : ( please do not copy ) .
Having you lead a dignified life is a priority. This life you describe will cost money, so my calculation assumes you living on a yearly salary that is 95% of what you are currently earning. The value of this salary when you retire is $166,212.00 per year. The amount of savings you must have in place when you reach the age of 67 is $4,022,000.00. To reach this goal you must begin saving $2,092.00/MO effective immediately. I wish you well in this endeavor.
Utilizing the following facts I identified the answers to the questions listed below.
1- Facts a. Current age 30, b. Retirement age of 67 c. “Expected expiration age” of 90 d. Current Salary of $72,000 per year e. Based on 80% of current salary f. An expected inflation rate of 3% 2- Answers a. With regards to retirement planning, how much money should you save each month? i. You should save $1,609.00 b. With Regards to retirement planning, how much money should I have when I retire? i. You should have $3,093,293.00 c. With regards to retirement , how much money should I spend each month? i. You could spend up to $15,500 per month under the auspice that you have 276 monthly withdrawals (23 years), before your anticipated expiration date and you wish to leave nothing to anyone.
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Firstly, the time value of money is very precious and necessary. The money earned today will be more costly the day tomorrow. Thus, savings can lead a better life in the future. Earning a good sum of amount, and saving them for the time of retirement is a great idea. Spending time without earning at this age will lead us to be in trap. Planning ahead of time, and making necessary needs for the future will help an individual to die with dignity.
Secondly, if there is no change in inflation or deflation rate; this assumption will be applicable. At the age of 67 with $72K/year will lead you to have $2,664,000; expecting $3750 to spend every month will land you up with $999,000 at the age of 67. So, you have another 23 years to spend the savings which you have made. Spending each month of $3620 per month; that is, $43,440/year will make a happy and successful living after your retirement.
Finally, when there is minimum inflation or deflation rate; this criteria will be applicable. As we are not aware of the affixes we are bound to face. It is better to save more than we spend. Thus, the total amount at the age of 67 will be $2,664,000. Spending $3000 per month; that is, $36,000/year will land you to have $1,332,000. Furthermore, you have 23 years of age to have a peaceful stay. The savings that are available can be spent from the age of 67 is $4,826 per month which equals to $57,912/year. This will be a better option I ask you to consider.
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Total number of years left of employment = 37
Total income = 37*72000 = 2,664,000.00
Total number of years till death = 60
Total number of months over which the income is consumed = 60*12 = 720
Income to be consumed per month = 2664000/720 = $3,700.00
Income consumed per year = 3700*12 = $44,400.00
Income saved per year = $27,600.00
Income to be saved each month = $2,300.00
Amount to have when retired = $1,021,200.00
However, if the person consumes $3700.00 each month he can maintain a fixed consumption level.
We can add a fixed rise in the income over years and also add a rate of interest on the money saved into consideration while deciding the monthly spendings if the retirement plan is to be made realistic.
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First of all we need to calculate how much you want to spend when you retirement in every year which is the future value from age 67 until 90 and that will be $45000
So, 45k/year in this time value let you live the life you want. In order to maintain the power of $45,000 today we need to calculate it with 3% inflation until age 80 and that means after 50 years. The future value will be = $228,697 in the future and for each month will be $19058
Based on that we need to know the present value with rate of 4% and for 23 years and that will be = $3,397,710.46 should you have when you retirement in age 67.
With investment %50 of the saving in the stock market and real estate with percentage of 40% at the stock market in inventive companies and 10% at the real estate. Based on the market value the average of profit is about 7% and to know the payment/ year we need to know that we have 67 – 30 = 37 years as duration. So the PMT = $21,191 and for every month will be $1765.
As we know that normally the salary of $72K/year will increase annually. So, we can divide the work period into two segments and for the first 18 years you can save $14,191/year and for the last 19 years you have to save $2
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