Question

You have plans to visit Africa in a safari after retirement. The whole safari cost today is $40,000, but inflation rate is expected to be 2%. You age to retire is 55 years and you are 36 years old. 3 years ago, you started savings, depositing 5,000 in a savings account that pay 4%. Also, you planned to deposit all your next Christmas bonuses ($1,500) in a money market accounts that pay 6%. Unfortunately, 4 years before retirement health issues required you to withdraw $4,000 from your savings account.

How much funds do you have for the safari immediately after retirement?

Is that amount enough to cover the safari costs? Show computations

Answer 1

Part 1: Cost of Safari at the time of Retirement

Years to retire = 55 - 36 = 19 years
Rate of inflation = 2%
PV (Present Value) of Safari = $40,000

FV (Future Value) of Safari = PV*(1+r)^n = $40,000*(1+2%)^19 = $58,272

Part 2: Savings

Total funds for the safari immediately after retirement = $166,740 + $46,358 = $213,098

This fund is sufficient for the sufari as the safari will cost only $58,272 at the time of retirement.