You earned $90,000 in the year that ended today at t=0. So far, you
have saved nothing. Starting with t=1, you plan to save 15% of your annual earnings. Your earnings are expected to increase at 7.5% per year for the next 30 years. You plan to retire at t=30. Assuming that the return that you expect to earn on your savings is 7.5% per year:
[2 points each for parts (a) and (b) and 1 point for part (c) for a total of 7 points]
(a) work out the future value of your savings at t=30.
(b) work out whether you would be able to withdraw $300,000 every year for 32 years after your retirement at t=30, with the first withdrawal occurring at t=31.
(c) indicate whether you are taking into account the fact that you will have to pay income tax on your earnings.
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