I am a 30 years old person who is planning on retirement at age 67. I expect to
ID: 1192597 • Letter: I
Question
I am a 30 years old person who is planning on retirement at age 67. I expect to die with dignity at age 90 (I already have contract to do that) and leave nothing to anyone. My definition of dignity is to be able to support myself financially without support from anyone (family) or any entity (government/social security/pension). I seeking your advice for retirement planning; how much should I save each month, how much should I have when I retire, and how much should I spend each month during retirements. I currently earn $72K/year. Please make the necessary assumptions to answer the above questions explaining the time value of money.
Explanation / Answer
TOTAL NUMBER OF YEARS LEFT OF EMPLOYEMENT = 37
TOTAL INCOME = 37*72000 = 2664000
TOTAL NUMBER OF YEARS TILL DEATH = 60
TOTAL NUMBER OF MONTHS OVER WHICH THE INCOME IS CONSUMED = 60*12 = 720
INCOME TO BE CONSUMED PER MONTH = 2664000/720 = 3700
INCOME CONSUMED PER YEAR = 3700*12 = 44400
INCOME SAVED PER YEAR = 27600
THUS IF THE PERSON CONSUMES 3700 EACH MONTH HE CAN MAINTAIN A FIXED CONSUMPTION LEVEL.
NOW, IN ORDER TO MAKE THE RETIREMENT PLAN MORE REALISTIC WE CAN ADD A FIXED RISE IN THE INCOME OVER YEARS. AND ALSO ADD A RATE OF INTEREST ON THE MONEY SAVED INTO CONSIDERATION WHILE DECIDING THE MONTHLY SPENDINGS.
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