You have just turned 21 and start to make plans for your future
retirement (it is never too early). You would like to retire at 55
and enjoy the life. To do so, you understand that you have to plan
to start saving ASAP. You want to be able to withdraw $24,000
annually starting with your 56th birthday and ending with your 75th
birthday, when the last pension payment should exhaust you savings
account. You plan to invest your money in the local credit union,
at an interest rate of 5% per year.
1. Consider that you save equal amounts annually starting with
your 22nd birthday and ending with your 55th birthday. What is the
annual amount you should save to be able to make the desired
withdrawals at your retirement?
2. Now suppose that you make the annual savings found in part a)
until your 35th birthday. On your 35th birthday you inherit a large
sum of money that allows you to make a lump sum deposit instead of
the remaining annual savings. How much money should you save at
this moment (at 35) instead of the remaining annual savings
(between 35 and 55) to make sure that you will have the necessary
savings for your retirement?