In: Finance
. Assume that your father is now 50 years old, plans
to retire in 10 years, and expects to live for
25 years after he retires—that is, until age 85. He wants his first
retirement payment to have
the same purchasing power at the time he retires as $40,000 has
today. He wants all of his
subsequent retirement payments to be equal to his first retirement
payment. His retirement
income will begin 1 year after he retires. Inflation is expected to
be 5% per year from today forward. He currently has $100,000 saved
and expects to earn a return on his savings of 9% per year with
annual compounding. To the nearest dollar, how much must he save
during each of the next 10 years to meet his retirement goal?
Based on given data, pls find the below workings:
Current Age - Base year | 50 |
Expected Retirement Age | 60 |
No.of Years to Retirement | 10 |
Life Expectancy | 85 |
No.of Years post Retirement | 25 |
Rate of Return during Accumulation | 9.0% |
Rate of Return after retirement | 9.0% |
Inflation Rate | 5% |
Inflation Adjusted Return | 3.8% |
Total Corpus Required: | |
Purchasing Power at Retirement | 40,000 |
No.of years after retirement | 25 |
Inflation Adjusted Return | 3.81% |
Corpus required at Retirement | 11,50,515 |
Investment so far in place | 1,00,000 |
Rate of Return on this | 9.00% |
This amount at the time of Retirement | 2,36,736 |
Net Corpus to be saved | 9,13,779 |
Annual Savings required to reach Corpus | 31,871 |