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# LIFE-CYCLE FINANCIAL PLANNING Basics Input s Real Riskfree Rate Retirement Age 2.

Suppose you are currently 28 years old and expect to earn a constant real salary of \$64,000 starting next year. You are planning to work for 32 years and then retire. You start off with a \$200,000 inheritance and expect to live until age 87 and leave nothing. You are limited to investing in a risk free asset with a risk free rate of 2.8%. Develop a financial plan for real savings and real consumption over your life time.

Basics Inputs Real Riskfre Rate 2.8% 28 Retirement Age 60 64 20 Outputs PV of Work Yrs \$1 An uity \$20.96 PV of \$1 Infinite An uity \$35.71 Working Yrs PV / Infinite PV 58.67% Date 0 1 2 3 4 5 6 7 8 9 10 1 12 13 14 15 16 17 18 19 20 21 2 23 24 25 26 27 28 29 30 31 32 3 34 35 36 37 38 39 40 41 42 43 4 45 46 47 48 49 50 51 52 53 54 5 56 57 58 59 60 61 62 63 64 65 6 67 68 69 70 Age 28 29 30 31 32 3 34 35 36 37 38 39 40 41 42 43 4 45 46 47 48 49 50 51 52 53 54 5 56 57 58 59 60 61 62 63 64 65 6 67 68 69 70 71 72 73 74 75 76 7 78 79 80 81 82 83 84 85 86 87 8 89 90 91 92 93 94 95 96 97 98 Real Salary \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$64,0 0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 Real Savings \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 \$26,4 8 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 -\$37,5 2 Real Consumption \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 \$37,5 2 Real Human Capital \$1,341,127 \$1,314,678 \$1,287,489 \$1,259,539 \$1,230,806 \$1,201,268 \$1,170,904 \$1,139,689 \$1,107,601 \$1,074,613 \$1,040,703 \$1,0 5,842 \$970,0 6 \$93 ,16 \$895,295 \$856,363 \$816,341 \$7 5,19 \$732,904 \$689,426 \$64 ,729 \$598,782 \$5 1,548 \$502,9 1 \$453,075 \$401,761 \$349,010 \$294,783 \$239,036 \$181,729 \$12 ,818 \$62,257 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 \$0 Real Financial Capital \$20 ,0 0 \$232,048 \$264,9 4 \$298,863 \$3 3,679 \$369,471 \$406,264 \$4 4,08 \$482,971 \$52 ,943 \$564,034 \$606,275 \$649,69 \$694,3 9 \$740,2 9 \$787,404 \$835,90 \$8 5,753 \$937,0 3 \$989,687 \$1,043,847 \$1,09 ,523 \$1,156,758 \$1,215,596 \$1,276,081 \$1,3 8,260 \$1,402,180 \$1,467,8 9 \$1,535,439 \$1,604,879 \$1,676,264 \$1,749,648 \$1,825,087 \$1,838,638 \$1,852,568 \$1,86 ,8 8 \$1,8 1,610 \$1,896,743 \$1,912,301 \$1,928,293 \$1,94 ,734 \$1,961,635 \$1,979,0 9 \$1,9 6,870 \$2,015,231 \$2,034,106 \$2,053,509 \$2,073,456 \$2,093,961 \$2,1 5,040 \$2,136,710 \$2,158,986 \$2,181,8 6 \$2,205,428 \$2,2 9,628 \$2,254,506 \$2,280,081 \$2,306,372 \$2,3 3,398 \$2,361,182 \$2,389,74 \$2,419,105 \$2,4 9,28 \$2,480,317 \$2,512,214 \$2,545,0 5 \$2,578,713 \$2,613,36 \$2,648,98 \$2,685,608 \$2,723,254 Real Total Wealth \$1,541,127 \$1,546,727 \$1,5 2,483 \$1,5 8,401 \$1,564,485 \$1,570,739 \$1,57 ,168 \$1,583,7 7 \$1,590,572 \$1,597,5 6 \$1,604,736 \$1,612,1 7 \$1,619,705 \$1,627,505 \$1,635,524 \$1,643,767 \$1,652,241 \$1,6 0,952 \$1,6 9,907 \$1,679,1 3 \$1,68 ,57 \$1,698,305 \$1,708,306 \$1,718,587 \$1,729,156 \$1,740,021 \$1,751,190 \$1,762,672 \$1,7 4,475 \$1,786,609 \$1,79 ,082 \$1,81 ,905 \$1,825,087 \$1,838,638 \$1,852,568 \$1,86 ,8 8 \$1,8 1,610 \$1,896,743 \$1,912,301 \$1,928,293 \$1,94 ,734 \$1,961,635 \$1,979,0 9 \$1,9 6,870 \$2,015,231 \$2,034,106 \$2,053,509 \$2,073,456 \$2,093,961 \$2,1 5,040 \$2,136,710 \$2,158,986 \$2,181,8 6 \$2,205,428 \$2,2 9,628 \$2,254,506 \$2,280,081 \$2,306,372 \$2,3 3,398 \$2,361,182 \$2,389,74 \$2,419,105 \$2,4 9,28 \$2,480,317 \$2,512,214 \$2,545,0 5 \$2,578,713 \$2,613,36 \$2,648,98 \$2,685,608 \$2,723,254 LIFE-CYCLE FINANCIAL PLANNING 30 40 50 60 70 80 90 10 -\$50,0 0 \$0 \$50,0 0 \$10 ,0 0 \$150,0 0 Real Salary & Consumption Over The Life-Cycle Real Salary Real Consumption Age Real Sal & Con 30 40 50 60 70 80 90 10 -\$1,0 0,0 0 \$0 \$1,0 0,0 0 \$2,0 0,0 0 \$3,0 0,0 0 Real Total Wealth Over The Life-Cycle Real Financial Capital Real Human C Age

I understand that the person earns till age 60 and lives till age 87. So we have 2 source of income until age 60 (salary +... View the full answer

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