Objective
• At present level of savings how much will Bob have when he retires?
• How long will this support him in case he withdraws every year 70% of his gross income at retirement given that the withdrawal will grow with rate of inflation and will be subject to income tax?
Assumptions
• Bob will be in service until the age of 65 • He will save a fixed percentage of his gross income (base income plus research grant) each year until retirement. • The school will continue to contribute 10% of his base salary every year until retirement • His assets will earn 7 percent/year up to retirement • His salary will grow at 4% • There will be no contingency requirement beyond the stated requirement of 70% of his last gross income • The inflation rate will remain constant • The rate of income tax for Bob will be constant
3
Model Structure
Salary Increase Contribution By School Asset as Of Now Return on Investment Pre-Ret
Return on Investment Post Ret
Base Salary
Yearly Savings
Asset at Retirement
Asset after 20 Years
Age of Zero Asset
Research Grant
Own Contribution
Income Tax Years until Retirement
Inflation
Withdrawal
Gross Salary
Fraction of Gross Salary Saved
Current Age Age at Retirement Gross Salary at Retirement
Fraction Withdrawn
Legend Outcome Factors outside control Factors within control