Question

You plan to retire in 22 years. You would like to maintain your current level of consumption which is $57,156 per year. You will need to have 33 years of consumption during your retirement. You can earn 4.79% per year (nominal terms) on your investments. In addition, you expect inflation to be 2.82% inflation per year, from now and through your retirement. How much do you have to invest each year, starting next year, for 8 years, in nominal terms to just cover your retirement needs?

Answer 1

Given nominal rate = 4.79%

Inflation = 2.82%

so real interest rate = (1+ nominal)/(1+ real ) -1 = (1.0479)/(1.0282) -1 = 1.9159%

required contribution per year is 124393