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Finance - Camille Henley is reviewing her retirement savings and planning for her retirement




Question;It is December 31, 2011, and 30-year-old Camille Henley is;reviewing her retirement savings and planning for her retirement at age 60. She;currently has $55,000 saved (which includes the deposit she just made today);andINVESTS #2,000 per year (at the end of the year) in a retirement account;that earns about 9% annually. She has decided that she is comfortable living on;$40000 per year (in today?s dollars) and believes she can continue to live on;that amount as long as it is adjusted annually for inflation. Inflation is;expected to average 2.36% per year for the foreseeable future. After;researching information on average life expectancy for females of her;background, her plan will assume she lives to age 90. She will withdraw the;amount needed for each year during retirement at the beginning of the year. So;on December 31 at age 60, she will make her last deposit of $2,000 and the;following day (January 1) she will withdraw her first installment for;retirement.;1. If;Camille continues on her current plan, will she be able to accomplish it?;2. How would;the situation change if Camille were to start placing her $2,000 annual savings;into her retirement account on January 1st of each year rather than December;31st of each year? Assume that theINVESTMENT still pays interest at the end of;the year.;3. If;Camille resumes making her deposits at the end of the year, how much would she;have to save each year to accomplish her objective?;4. Assume;that Camille continues with her current plan. What interest rate would she have;to earn on herINVESTMENT to make it work?;5. If;Camille wishes to leave a $50,000 perpetuity to her alma mater, starting one;year from the year she turns 90, then how muchEXTRA MONEY would she need to;have on December 31st of the year she turns 90? Assume that theINVESTMENT will;earn 9%.;6. Rework;the previous question for the case where Camille wants the university;investment to grow by 5% per year.


Paper#48842 | Written in 18-Jul-2015

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