Tommy plans to retire in 25 years (1st withdrawal in year 26). He is told by Simon that a desirable standard of living in 26 years will require $180,249 per year. Tommy wants to be able to maintain that level of purchasing power forever (Assume inflation = 3% per year). Tommy plans to increase his savings by 2% per year and expects to earn 6% per year on his investments.
How much does Tommy have to save the first year to fund his retirement goal?
Step 1 : Calculate Retirement Corpus
To calculate the corpus reqired at the time of retirement, we need to use the PV function of excel:
Retirement Corpur Required = $2,782,790
Step 2 : Calculation of First Year Investment
This can be solved using the PMT function excel:
Hence, the first year investment needs to be $34,594, which will increased by 2% every year to reach the goal.