4-61. It is estimated that you will pay about $80,000 into the Social Security s

Question

4-61. It is estimated that you will pay about $80,000 into the Social Security system (FICA) over your 40-yea work span. For simplicity, assume this is an annuity of $2,000 per year, starting with your 26th birthday and continuing through your 65th birthday. (4.10) a. What is the future equivalent worth of your Soc Security savings when you retire at age 65 if the government's interest rate is 6% per year? What annual withdrawal can you make if you expedt to live 20 years in retirement? Let i-6% per year. b. 4-62. A father wants to eot

Explanation / Answer

4-61

A.

Time = 40 years

Annual payment = $2000

R = 6%

Future equivalent worth = 2000*(1.06^40 - 1)/.06

Future equivalent worth = $309523.93 or $309524

B.

Time = 20 years

R = 6%

Let, annual withdrawal = X

Then,

309524 = X*(1-1/1.06^20)/.06

X = 309524/11.47

X = 26985.5

So, annual withdrawal will be $26985.5 or $26986.

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