Posted by SHALLY on Thursday, April 22, 2010 at 2:33am.
1)You have just turned 30 years old, have just received your MBA, and have accepted your first job. Now you must decide how much money to put into your retirement plan. The plan works as follows: Every dollar in the plan earns 7% per year. You cannot make withdrawals until you retire on your sixtyfifth birthday. After that point, you can make withdrawals as you see fit. You decide that you will plan to live to 100 and work until you turn 65. You estimate that to live comfortably in retirement, you will need $100,000 per year starting at the end of the first year of retirement and ending on your one hundredth birthday. You will contribute the same amount to the plan at the end of every year that you work. How much do you need to contribute each year to fund your retirement?
2)Problem 1 is not so realistic because most retirement plans do not allow you to specify a fixed amount to contribute every year. Instead, you are required to specify a fixed percentage of your salary that you contribute. Assume that your starting salary is $750,000 per year and it will grow 2% per year until you retire. Assuming everything stays the same as in problem 45, what percentage of your income do you need to contribute to the plan every year to fund the same retirement income?

corporate finance  Anonymous, Sunday, July 18, 2010 at 9:47pm
Problem 45 is not very realistic because most retirement plans do not allow you to specify a fixed amount to contribute every year. Instead, you are required to specify a fixed percentage of your salary that you want to contribute. Assume that your starting salary is 75,000 per year and it will grow 2% per year until you retire. Assuming everything else stays the same as in Problem 45, what percentage of your income do you need to contribute to the plan every year to fund the same retirement income?
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