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    Saving for retirement

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    Problem 35.

    You are saving for retirement. To live comfortably, you decide you will need to save $2million by the time you are 65. Today is your 30th birthday, and you decide, starting today and continuing on everyday birthday up to and including your 65th birthday, that you will put the same amount into savings account. Is the interest rate is 5%, how much must you set aside each year to make sure that you will have $2million in the account in your 65th birthday?

    Problem 36.

    You realize that the plan in problem 35 has a flaw. Because your income will increase over your lifetime, it would be more realistic to save less now and more later. Instead of putting the same amount aside each year, you decide to let the amount that you set aside grow by 3% per year. Under this plan, how much will you put into the account today? (Recall that you are planning to make the first contribution to the account today).

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    Solution Summary

    The solution computes Saving for retirement by calculating how much needed to keep aside every year.