Problem 4-25

You are trying to decide how much to save for retirement. Assume you plan to save $5,000 pe
with the first investment made one year from now. You think you can earn 10% per year on y
investments and you plan to retire in 43 years, immediately after making your last $5,000 inve

Complete the steps below using cell references to given data or previous calculations. In some
simple cell reference is all you need. To copy/paste a formula across a row or down a column
absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function
used, the directions will specify the use of that function. Do not type in numerical data into a c
function. Instead, make a reference to the cell in which the data is found. Make your computa
in the blue cells highlighted below. In all cases, unless otherwise directed, use the earliest app
of the data in your formulas, usually the Given Data section.

a. How much will you have in your retirement account on the day you retire?
b. If, instead of investing $5,000 per year, you wanted to make one lump-sum investment
your retirement that will result in the same retirement saving, how much would that lum
need to be?
c.
If you hope to live for 20 years in retirement, how much can you withdraw every
year in retirement (starting one year after retirement) so that you will just exhaust your
with the 20th withdrawal (assume your savings will continue to earn 10% in retirement
d.
If, instead, you decide to withdraw $300,000 per year in retirement (again with
the first withdrawal one year after retiring), how many years will it take until you exhau
savings?
e.
Assuming the most you can afford to save is $1,000 per year, but you want to retire wit
million in your investment account, how high of a return do you need to earn on your
investments?

Annual saving $ 5,000

Interest rate 10%
Years to retirement 43

a. How much will you have in your retirement account on the day you retire?
 Future value $ 2,962,003.46

b. If, instead of investing $5,000 per year, you wanted to make one lump-sum investment
your retirement that will result in the same retirement saving, how much would that lum
need to be?

Lump-sum investment $ 49,169.99

c.
If you hope to live for 20 years in retirement, how much can you withdraw every
year in retirement (starting one year after retirement) so that you will just exhaust your
with the 20th withdrawal (assume your savings will continue to earn 10% in retirement

Years of withdrawal 20

Annual withdrawal $ 440,282.94

d. If, instead, you decide to withdraw $300,000 per year in retirement (again with
the first withdrawal one year after retiring), how many years will it take until you exhau
savings?

Annual withdrawal $ 300,000

Number of periods 7.00

e. Assuming the most you can afford to save is $1,000 per year, but you want to retire wit
million in your investment account, how high of a return do you need to earn on your
investments?

Annual saving $ 1,000

Future value $ 1,000,000

Rate of return

Requirements
1 In cell D17, by using cell references, calculate the future value of the yearly savings on
you retire (1 pt.). Note: The output of the expression or function you typed in this cell i
expected as a positive number.
2 In cell D21, by using cell references, calculate the lump-sum that you need to invest tod
order to save the same amount as with the yearly savings (1 pt.). Note: The output of th
expression or function you typed in this cell is expected as a positive number.
3 In cell D27, by using cell references, calculate the amount that you can withdraw from
retirement account every year (1 pt.). Note: The output of the expression or function yo
in this cell is expected as a positive number.
4 In cell D33, by using cell references, calculate the number of years that it will take to d
your retirement savings if you withdraw a certain amount per year (1 pt.).
5 In cell D40, by using cell references, calculate the return that you need to earn on your
savings for a certain payment to reach your goal at retirement. Note: For this particular
only use the first four parameters of the RATE function. Assume Annual savings as a c
outflow and the Future value as an cash inflow. (1 pt.).
ou plan to save $5,000 per year
n earn 10% per year on your
king your last $5,000 investment.

ous calculations. In some cases, a

a row or down a column, an
a specific Excel function is to be
in numerical data into a cell or
und. Make your computations only
ected, use the earliest appearance

y you retire?
ne lump-sum investment today for
how much would that lump sum

ou withdraw every
ou will just exhaust your savings
o earn 10% in retirement)? ($2,962,003.46)

ment (again with

will it take until you exhaust your
($49,169.99)

but you want to retire with $1

ou need to earn on your
($440,282.94)

y you retire?
ne lump-sum investment today for
how much would that lump sum

ou withdraw every
ou will just exhaust your savings
o earn 10% in retirement)?

-7.20588596454

ment (again with

will it take until you exhaust your

but you want to retire with $1

ou need to earn on your
e of the yearly savings on the day
on you typed in this cell is

hat you need to invest today in

t.). Note: The output of the
ositive number.

t you can withdraw from your

expression or function you typed

years that it will take to deplete

year (1 pt.).
you need to earn on your yearly
Note: For this particular case,
me Annual savings as a cash