Your 21 year old client just graduated from college and starteda job with monthly salary of $5,000 per month. He wants to retirewhen he is 60 years old and wants to start saving for retirementright away. We cannot be sure of how long we live after retirement,but the client wants to be extra careful and save for 30 years ofafter retirement life. Market expectation for average annualinflation for the future is 1.7% (Let’s assume inflation to be 0after retirement period). Because of inflation, he will needsubstantially higher retirement monthly income to maintain the samepurchasing power. He plans to purchase a lifetime annuity from aninsurance company one month before he retires, where the retirementannuity will begin in exactly 39 years (468 months). The insurancecompany will add a 2.00 percent premium to the pure premium cost ofthe purchase price of the annuity. The pure premium is an actuarialcost of his anticipated lifetime annuity. He has just learned theconcept of time value of money and never saved anything earlier. Hewill make the first payment in a month from now and the lastpayment one month before he retires (a total of 467 monthlypayments).

1) Given a rate of return of 4% for the foreseeable future, howmuch does he need to save each month until the month before heretires?