Answered: f Danny plans to retire at age 65, and…

f Danny plans to retire at age 65, and will therefore make 45 payments into the fund, how much is the retirement fund worth to him today?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter14: Planning For Retirement

Section: Chapter Questions

Problem 2FPE

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Concept explainers

Retirement Income

Retirement income is the income received by the retiring person after retirement. Income can either be paid every month or paid annually. The retiree would get a guaranteed income until their death. Retirement income payment differs from person to person based on their investment type and payment method. Some are paid on a lump-sum basis and some are paid in a regular series with fixed payment or variable cash flow. Retirement income can be created from retirement savings, investment, salary, bonus, and wages from employment. Every working individual should plan their retirement income according to their income goals for the future. The plan should be made by identifying suitable income sources, estimating future expenses, applying a savings plan, and managing risk and assets. The most common age for retirement is between 60-65 years.

Question

Anderson just landed his first job and is scheduled to start work on his 20th birthday. His parents have advised him that even though retirement seems like a long way off, it is important to start planning early. He has decided to deposit $4,500 into a retirement fund at the end of his first working year and hopes to increase this amount by 5% each year thereafter. The retirement fund is projected to pay an average rate of interest of 4%. If Danny plans to retire at age 65, and will therefore make 45 payments into the fund, how much is the retirement fund worth to him today?

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