Prof. Business has a self-managed retirement plan through herUniversity and would like to retire in 8 years and wonders if hercurrent and future planned savings will provide adequatefutureretirement income. Here’s her information and goals.

Prof. Business wants a 20-year retirement annuity that begins 8years from today with an equal annual payment equal to $110,000today inflated at 2% annually over 8 years. Her first retirementannuity payment would occur 8 years from today. She realizes herpurchasing power will decrease over time during retirement.

Prof. Business currently has $640,000 in her Universityretirement account. She expects these savings and any futuredeposits into her University and any other retirement account willearn 7.5% compounded annually. Also, she expects to earn this same7.5% annual return after she retires.

Answer the following questions to help Prof. Business finalizeher retirement planning.

1. What is Prof. Business’ desired annual retirement income?

2. How much will Prof. Business need 8 years from today to fund herdesired retirement

   annuity?

3. In addition to the $640,000 balance today, Prof. Business willfund her future retirement goal from question 2 by making 8 annualequal deposits at 7.5% compounded annually into her retirementaccounts starting a year from today (the last deposit will be madewhen Prof. Business retires). How large does this annual depositneed to be in additionto the initial $640,000 invested in Prof.Business’ retirement fund?

4. This annual figure from #3 is more than the Prof.’s currentannual contribution, which makes her feel a little anxious abouther future planned retirement. Also, Prof. Business’annualretirement account contribution is based on a percentage of hersalary and willincrease as her salary increases. So, let’s re-planher retirement income. Let’s account for the fact that her and theUniversity’s contributions to Prof. Business’ Universityretirementplan are based on a certain percentage of her salary and willincrease as her salary increases. Based on this formula, her firstupcoming end of the year deposit will be$20,200 and let’s assumethat her annual deposit and salary will grow at a 2% annualrateover the remaining 7 years (8 total deposits) to Prof. Business’retirement. Thesedeposits are in addition to the $640,000 shecurrently has today in the University retirement plan. Answer thefollowing based on these assumptions.

1. a) How much money will Prof. Business have in her retirementaccount immediately after her last deposit 8 years from today?

2. b) What would be the equal annual payment from her 20-yearretirement annuity whose first payment occurs exactly 8 years fromtoday?