(Show how you calculated your ending salary and the number that you calculated. Then answer the question about your desired retirement income.) Many financial planners suggest that retirement income (from all sources) should be from 70% to 100% of the salary one had in the last year before they retire.
How large will your portfolio have to be (when you retire) to provide your desired standard of living? This problem asks how much money you must accumulate (PVA) by the time you retire or are done working to live for n years, on a retirement income of (PMT) per year if you earn interest rate i.
For example, imagine somebody about to retire today, who assumes that they are going to live for n=20 years, wants an income (PMT) = $200,000 per year during their retirement and their annuity earns i = 10% interest:
Or, verbally, if this person had a portfolio of $1,702,712 on the day they retired, if they lived for another 20 years, and earned 10%, their annuity would pay $200,000 per year, and there will be nothing left when the person died. (Remember this example is for today: Your number will be much larger because your retirement will take place almost 50 years from now.)
Value of Defined Benefit Plan with Single Employer: Suppose you take your first job with an employer that offers a defined benefit retirement plan and a beginning salary of $54,000/yr. Suppose also that you average 5.0% raises every year and that you stay with the same employer for all 48 years of your career. Note that during your 48-year career, you will receive 47 raises, the last of which happens on your last working day, which is also your 70th birthday. (No matter your current age, consider that you start working at age 22, and retire at 70). Assume a salary of $54,000 in the first year and an inflation rate of 2.0%.
c. Assuming that the employer’s defined benefit plan pays 1.25% of ending salary per year of employment, what