You are 30 years old today and are planning for retirement. You would like to work...

You are 30 years old today and are planning for retirement. You would like to work for 30 more years and retire when you are 60. You currently earn $100,000 per year. You expect inflation will average 3% per year over the next 30 years. To simplify this problem, assume your income is paid annually and you receive a salary of $100,000 today. You will make your first retirement withdrawal in 31 years at the age of 61.

To simplify this problem, assume your income is paid annually and you receive a salary of $100,000 today. You will make your first retirement withdrawal in 31 years at the age of 61.

What is the withdrawal amount on your 61st birthday (in 31 years) that is the equivalent of today's $100,000?

Solutions

Expert Solution

Time = 31 Years

Current Value of Withdrawal = $ 100,000

Inflation Rate = 3%

Actual Amount of Withdrawal = Current Value x ( 1 + Rate )^Time

= $ 100,000 x ( 1 + 0.03 )³¹

= $ 100,000 x 2.5 = $ 250,000

Hence, The Withdrawal amount on 61st birthday will be $ 250,000

jeff jeffy answered 1 year ago

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