25 years old and $70,000 yearly salary.1.) you intend to retire at the age of...

25 years old and $70,000 yearly salary.

1.) you intend to retire at the age of 65, (40yrs). if the inflation rate over the next 40 years is expected to average 2.5% per year, how much money will you have to be earning at the start of your retirement to have the same purchasing power your 70,000 salary today? Ignore taxes, show work

2.) you need to have $250,000 per year to live comfortable in retirement to allow for your passion for travel. You feel you will live to your 100th year (35 years after retirement). You believe that the rate of return on your investments will be 5% per year. How much of a retirement fund must you have in order to start paying yourself 250,000 per year on the first day of retirement and the beginning of each year thereafter until your 100th year? show work

Solutions

Expert Solution

1. Amount in retirement to have same purchasing power = Current salary * (1 + Inflation)^Years

Amount in retirement to have same purchasing power = 70000 * (1 + 0.025)^40

Amount in retirement to have same purchasing power = 70000 * 2.6851

Amount in retirement to have same purchasing power = $187954.47

2. Amount to be saved in retirement account = Amount * Present value annuity due (5%,40)

Amount to be saved in retirement account = 250000 * [(1 - (1+Interest)^(-Years))/Interest] * (1 + Interest)

Amount to be saved in retirement account = 250000 * [(1 - (1.05)^(-40))/0.05] * (1 + 0.05)

Amount to be saved in retirement account = 5000000 * [(1 - 0.142046] * 1.05

Amount to be saved in retirement account = $4504260.17

jeff jeffy answered 1 year ago

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