25.1k views
2 votes
Your client is 30 years old . She wants to begin saving for retirement with the first payment to come one year from now. She can save $3,000 per year, and you advise her to invest it in the stock market, which you expect to provide average return of 10% in the future.

a. If she follows your advice, how much will she have at 60?
b. She expects to live for 20 yrs if she retires. If her investment earns 6% return, how much will she be able to withdraw at the end of each year after retirement?

User AlexanderF
by
8.0k points

1 Answer

3 votes

Final answer:

If she saves $3,000 per year for 30 years and earns an average return of 10%, she will have approximately $52,347 saved at age 60. if she expects to live for 20 years after retirement and earns a 6% return on her investments she will be able to withdraw approximately $3,717.12 at the end of each year after retirement.

Step-by-step explanation:

To answer these questions, we need to calculate the future value of the investments using compound interest.

a. If she saves $3,000 per year for 30 years and earns an average return of 10%, the future value of her investments at age 60 can be calculated using the formula for compound interest: Future Value = Present Value * (1 + Interest Rate)^Number of Years. In this case, the present value is $3,000 per year, the interest rate is 10%, and the number of years is 30. Plugging in these values:Future Value = $3,000 * (1 + 0.10)^30 = $3,000 * 17.449 = $52,347. So, she will have approximately $52,347 saved at age 60 if she follows your advice.

b. If she expects to live for 20 years after retirement and earns a 6% return on her investments, we can calculate the amount she can withdraw each year using the formula for the future value of an annuity: Withdrawal Amount = Future Value / [(1 + Interest Rate)^Number of Years - 1]. In this case, the future value is $52,347, the interest rate is 6%, and the number of years is 20. Plugging in these values:Withdrawal Amount = $52,347 / [(1 + 0.06)^20 - 1] = $52,347 / 14.0789 = $3,717.12. So, she will be able to withdraw approximately $3,717.12 at the end of each year after retirement.

User Onki
by
8.9k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.