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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);and invests #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 the investment 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 her investment 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 much extra money would she need to;have on December 31st of the year she turns 90? Assume that the investment will;earn 9%.;6. Rework;the previous question for the case where Camille wants the university investment to grow by 5% per year.


Paper#48939 | Written in 18-Jul-2015

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