Make annual withdrawals during retirement,

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Reference no: EM131012056

Jared is looking forward to graduating with his MBA from OSU. He wants to begin saving for retirement and believes he will need $135,000 during his first year in retirement (he assumes a 2% annual inflation rate, so the $135,000 will have about the same purchasing power as $75,000 today). Jared wants to maintain a constant standard of living as a retiree, so his withdrawals will grow at 2% annually, after the first withdrawal of $135,000, to keep pace with inflation. He assumes that he will work and save for 30 years before retirement and earn 8% annual interest on his savings. Further he assumes that he will live for 20 years after retiring and that he will put his savings in CDs earning 3% interest annually. Jared will make annual deposits into his retirement account at the end of each year. However, he will make annual withdrawals during retirement, with each withdrawal occurring at the beginning of the year (note: Jared’s first withdrawal from his retirement account occurs on the same day he makes his last savings deposit). Ignoring taxes, fees, etc., how much will Jared need to save annually to fund his retirement? (i.e. How much will he have to save each year after he graduates to fund his retirement if he wants to withdrawal $135,000 in 30 years?)

Reference no: EM131012056

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