Assume that your father is now 50 years old, plans to retire in10 years, and expects to live for 25 years after he retires - thatis, until age 85. He wants his first retirement payment to have thesame purchasing power at the time he retires as $55,000 has today.He wants all his subsequent retirement payments to be equal to hisfirst retirement payment. (Do not let the retirement payments growwith inflation: Your father realizes that if inflation occurs thereal value of his retirement income will decline year by year afterhe retires). His retirement income will begin the day he retires,10 years from today, and he will then receive 24 additional annualpayments. Inflation is expected to be 6% per year from todayforward. He currently has $50,000 saved and expects to earn areturn on his savings of 7% per year with annual compounding. Thedata has been collected in the Microsoft Excel Online file below.Open the spreadsheet and perform the required analysis to answerthe question below. Open spreadsheet How much must he save duringeach of the next 10 years (with equal deposits being made at theend of each year, beginning a year from today) to meet hisretirement goal? (Note: Neither the amount he saves nor the amounthe withdraws upon retirement is a growing annuity.) Do not roundintermediate calculations. Round your answer to the nearestdollar.
| Required Annuity Payments | | |
| | |
| Father's current age | 50 | |
| Number of years until retirement | 10 | |
| Number of years living in retirement | 25 | |
| | |
| 1st retirement payment, same purchasing power today as | $55,000 | |
| Inflation rate | 6.00% | |
| Current savings at t = 0 | $50,000 | |
| Percentage return earned | 7.00% | |
| | |
| Step 1. Calculate retirement payments, beginning at t = 10 | | Formulas |
| Fixed retirement payments | | #N/A |
| | |
| Step 2. Calculate the value of current savings at t = 10 | | |
| Value of current savings, 10 years from today | | #N/A |
| | |
| Step 3. Calculate the value of the annuity due of retirementpayments at t = 10 | | |
| Value of annuity due | | #N/A |
| | |
| Step 4. Calculate the net amount that must be accumulated at t= 10 to receive desired retirement payments | | |
| Net amount needed in 10 years | | #N/A |
| | |
| Step 5. Calculate the value of annual deposit needed to meetdesired retirement goal | | |
| Value of annual deposit to meet retirement goal | | #N/A |
