I expect to be retired for about 20 years (240 months). I expectto earn 6%...

I expect to be retired for about 20 years (240 months). I expect to earn 6% APR compounded monthly (after-tax) on my investments during my retirement years and I also expect inflation to average about 1.8% annually (compounded monthly). How much do I need to have saved to be able to spend the equivalent of $10,000 per month during each month of my retirement (note that you will be able to spend $10,000 during the first month of retirement and this amount will increase each month to keep my purchasing power at $10,000 dollars)?

Solutions

Expert Solution

Amount needed during each month of the retirement which will be equivalent with the purchasing power of the withdrawal amount of first month = $10,000

Calculating the amount need to be saved using Present value of Growing Ordinary annuity formula:-

Where, C= First month withdrawal amount = $10,000

r = Periodic Interest rate = 6%/12 = 0.5%

g = growth rate of annuity = 1.8%/12 = 0.15%

n= no of periods = 240 months

Present Value = $1,620,324.26

So, amount needs to be saved for retirement is $1,620,324.26

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Number of years= 20 Number of months=240 Annual Percentage Rate=8.00% Monthly interest rate=0.67% Loan amount=$441,747 Fixed...

Number of years= 20 Number of months=240 Annual Percentage Rate=8.00% Monthly interest rate=0.67% Loan amount=$441,747 Fixed monthly repayment amount=$ 3,694.95 1. Total amount of interest paid in the 3rd year? 2. The total principle paid in the 4th year? 3. The amount of the loan outstanding (loan balance) at the end of the month 30? 4. At the end of which month will it be for the loan outstanding (loan balance) to be less than 50% of the original loan...

Problem 1 (20 marks) You are planning for your retirement. You expect to earn a monthly...

Problem 1 You are planning for your retirement. You expect to earn a monthly salary of $7,000 starting on the 1st month after you retire, which will be able to provide comfortably for your daily expenses through your retirement years. You are currently 33 and plan on retiring when you become 64, and you expect to live 20 years after retirement. In addition to providing a salary for your retirement you would like to buy a house by the time...

Problem 1 (20 marks) You are planning for your retirement. You expect to earn a monthly...

You are going to invest $6,000 for the next 50 years. You expect to earn 8%...

You are going to invest $6,000 for the next 50 years. You expect to earn 8% per year on your investment. You expect that the current tax law and tax rates of 15% on long-term capital gains and 24% on short-term capital gains and income will still be in effect in 50 years. If you take all of your money out in 50 years, how much after-tax money will you have if you invest in a) Regular IRA b) Roth...

if I have 198 months until I retire and expect a 7% annual return on my...

if I have 198 months until I retire and expect a 7% annual return on my investments, how much must I save each month to accomplish my retirement goal of $7,500 per month for 30 years (please show work so I can follow and understand)?

A prize pays $16,000 each quarter for 5 years (20 payments)commencing in exactly 6 months’ time....

A prize pays $16,000 each quarter for 5 years (20 payments)commencing in exactly 6 months’ time. If the appropriate discount rate is 5.9% p.a compounding quarterly, the value of the prize today is (round to nearest cent; don’t use $ sign or commas): [HINT: the annuity is deferred] Select one: a. $63816.40 b. $275376.40 c. $271373.64 d. $4210853.69.

i). Ford says that they expect that 20% of the Mustangs they sell to be Black,...

i). Ford says that they expect that 20% of the Mustangs they sell to be Black, 30% Gray & 50% red. Conduct a χ2 test to determine if these observed frequencies match Ford's expectation at a 90% LC. ii). A sample of 12 NY mob bosses reveals that they paid an average of $1600 in income taxes with σ = $100, while a sample of 10 PA mob bosses paid an average of $1700 with σ = $150. Is the...

Analyze the following situation: Martha has worked for John for two years. About 6 months ago,...

Analyze the following situation: Martha has worked for John for two years. About 6 months ago, John asked Martha out to dinner. They had a good time together and agreed that they had some real interests in common outside of work. The pair dated for two months. Martha initially liked John, but he was beginning to get annoying. John called her all the time, was very pushy about her seeing him, and wanted to control all aspects of her life,...

Citibank need to borrow $1 million for 6 months starting in 3 years. Citibank is concerned about...

Citibank need to borrow $1 million for 6 months starting in 3 years. Citibank is concerned about the interest rate would like to lock in the interest rate it pays by going long an FRA with Bank of America. The FRA specifies that Citibank will borrow at a fixed rate of 0.03 for 6 months on $1 million in 3 years. If the 6 months LIBOR rate proves to be 0.01. Then to settle the FRA, what is the cash flow to...

I would like to have $50,000 after retirement in 20 years 8 months from now. How...

I would like to have $50,000 after retirement in 20 years 8 months from now. How much should I invest right now to reach my goal if interest rate remains the same for the next 30 years as 3% p.a.?

Subjects