Case 2: By the end of each year, you contribute an equal amount of $3,300 per...

Case 2:

By the end of each year, you contribute an equal amount of $3,300 per year to your retirement fund portfolio, which earns an annual nominal return of 11.25% averagely in the long term. The annual contribution continues for 36 years until you retire. (Note: All tax concerns are ignored.)

(c) This time, considering the long-term annual inflation averages 3.05%. By your retirement, how much real money (at deflated real purchasing power) will you actually have in the account? How much equal amount (also at deflated real purchasing power) should you withdraw and spend by the end of each year for your retirement life, provided that you do not plan to leave any money to your heirs?

(d) Again, consider the long-term annual inflation 3.05%. By your retirement, how much real money (at deflated real purchasing power) will you actually have in the account? How much equal amount should you and your heirs withdraw and spend (at deflated real purchasing power) by the end of each year, provided that you plan to allow both you and your heirs to benefit from this fund, generations after generations infinitely?

Solutions

Expert Solution

Real interest rate = Nominal interest rate - Inflation rate

Inflation rate is rate at which price of general products increases in future. An inflation reduces the purchasing power of the money.

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

jeff jeffy answered 4 months ago

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