1. Your required rate of return until retirement is 8%
2. Your retirement payout will be a fixed payment, and will be adjusted for a much more conservative return of 5%. This will be your return on the payout until you die.
Using the time value of money, you will need to calculate how much you will need to save up in a lump sum so you can retire at ages 62 and also at age 70, in order to receive annual payments for the rest of your expected life. Once you have calculated your answers, please outline how you plan to implement it. Please use the following information in your problem:
1. Target retirement age(s): 62 and 70 (please complete analysis for both)
2. Current age: 25
3. Total amount of money needed to live off for retirement: $37,500 ($3,125 a month)
4. Anticipated death age: 80
? Retirement at age 62: 18 years of retirement
? Retirement at age 70: 10 years of retirement
5. Do not factor in social security or spouses retirement.
6. $10,000 in retirement account right now at age 25.
Please find the solutions for how to calculate Time Value of Money in the attached file.
Running head: TIME VALUE OF MONEY
Time value of money
1. Retirement age = 62 years
Current age = 25 years
Expected time after retirement = 18 years
Remaining Time period of Service = 37 years (62-25 =37)
Present value = $37500
Time period after retirement = 18 years
Interest Rate before Retirement= 8%
Interest Rate after Retirement= 5%
A (Annuity) = $37500
i ( interest rate after retirement) = 5%
n (time period after retirement) = 18 yrs
Present value annuity = 37500
= 37500 11.68959
The solution calculates the amount to save for retirement in several scenarios.