Retirement Plan

  1. Read (carefully) sections 11.1 and 11.2 of chapter 11
  2. Revise Tim’s Retirement Plan to take probabilities into account.
  3. Assume the salary increase will have a normal distribution with a mean of 4% and a standard distribution of 1%
  4. Assume the annual rate of return will follow at table as follows
  5. 10% chance it will be 2%
  6. 20% chance it will be 3%
  7. 40% chance it will be 4%
  8. 20% chance it will be 5%
  9. 10% chance it will be 6%
  10. Assume he will contribute between a random uniform distribution between a minimum of 4% and a maximum of 8%
  11. Run 1000 simulations
  12. Prepare a Summary statistics for the amount Tim will have at retirement age of 65
  13. Prepare a bin covering the max and min of the amount Tim could have at 65
  14. Prepare a chart ( histogram) showing the frequencies of the amounts in each bin.
    Will Tim reach his retirement goal? And if not, what recommendations could you offer

Sample Solution