You want to be able to spend the current equivalent of $58,077 per year during your...

You want to be able to spend the current equivalent of $58,077 per year during your retirement that will start in 17 years, and go for 27 years. You expect inflation to be 4% per year during your retirement. How much would you have to invest in nominal terms in years 1 to 7, to fully pay for your retirement if your investments earn 7.46% APR (annual compounding).

Expert Solution

1. Equivalent amount at retiremernt of $ 58077 with inflation 4% is

=

= 113128.22

2. Now calculate the Accumulated balance needed. here in retirement question we assume that 1st withdrawl at beginning of year.In calculator On the BGN mode and put values in TVM as N=27, I/Y= 7.46, PMT = 113128.22 and FV =0 Compute PV = 1299110.12

3. You need to invest from 1 to 7 years annualy and then 8 to 17 year that lumpsum will get compunding. Firstly bring back the 1299110.12 year at the end of year 7.

=

= 632670.53 is the amount which must be accumulated by him by saving 1 to 7 years .

3. Now we need to calculate monthly saving needed. Put values in TVM in your financial calculator:

N=7,I/Y = 7.46, PV=0, FV= 632670.53 Compute PMT = 72086.24

$72086.24 need to save annualy for 7 years for annual withdrawl of 113128.22 annualy after retirement for 27 years.

jeff jeffy answered 2 years ago

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