6.

If the Halls want to have as much of an after-tax income when they retire as they currently have, and
assuming they live until they are 80 years old, how much money should they set aside each month so as
to have enough money accumulated in their retirement nest egg? Assume that annual inflation rate is 4%
per year for the whole term, the investment return is 8% per year before and after retirement, and that
their tax rate is 28% throughout their life.

Marty 50,000
Laura 25,000
Combined salary 75,000

Combined salary 75,000

Tax(28%) 21,000
After tax income 54,000

Inflation rate 4%
Investment yield 8%

Retirement age 65
Current age 30
Number of years until retirement 35

Expected life span 80

Retirement age 65
Number of expected years after
retirement 15

Annual Income Desired

= PV * (1+R)n
During Retirement
Annual Income Desired
= 54,000 * (1+4%)35
During Retirement
Annual Income Desired
= 213,088.81
During Retirement
Age PV PV Factor 8% Income Needed
65 213,088.81
66 221,612.36 0.92593 205,197.53
67 230,476.85 0.85734 197,597.02
68 239,695.93 0.79383 190,277.82
69 249,283.76 0.73503 183,231.04
70 259,255.11 0.68058 176,443.85
71 269,625.32 0.63017 169,909.79
72 280,410.33 0.58349 163,616.62
73 291,626.74 0.54027 157,557.18
74 303,291.81 0.50025 151,721.73
75 315,423.49 0.46319 146,101.00
76 328,040.43 0.42888 140,689.98
77 341,162.04 0.39711 135,478.86
78 354,808.53 0.36770 130,463.09
79 369,000.87 0.34046 125,630.03
80 383,760.90 0.31524 120,976.79
2,394,892.34

FV
PMT =
(1+r)n-1
( )
r

2,394,892.34
PMT =
(1+.0067)420-1
( )
0.0067

2,394,892.34
PMT =
15.29
( )
0.0067

2,394,892.34
PMT =

2,282.47

PMT = 1,049.25
*The couple will have to save $1,049.25 monthly for the next 35 years in order for them to
have a $213,088.81 savings on their retirement age.