John plan to work for 35 years and then retire. John currently have nothing saved toward retirement, but he plan to save 10% of your salary each year for the next thirty years. His current salary is $60,000 per year and his expect that salary to grow at about 6% per year. Inflation is expected to be 2% per year indefinitely. All of his savings will be invested in a portfolio of stocks that is expected to pay an 11% annual return. At the time he retire,he plan to move your money into a safer portfolio that is expected to pay 7% per year. As an eternal optimist, he expect to live forever. Assume that he want his purchasing power to be the same each year during retirement and that his want to spend the maximum amount possible under the assumptions above.

a) How much money can you withdraw during the first year of retirement (in 36 years)?

b) What is the purchasing power of a given annual retirement withdrawal in today’s dollars?