In: Economics
You decide to replace your income of $70,000 a year in retirement for 30 years. How much do you need in your retirement account the day you retire to make that happen, assuming a real interest rate of 3%?
Lets understand the problem. We need cashflows of $70,000 every year for 30 years. Therefore the present value of all such future cashflows discounted at real interest rate, is the amount you need in your account the day you retire.
Therefore, you need around $1,327,031 in your account the day you retire, to get $70,000 every year for the next 30 years.