Question

According to state law in Wisconsin, public-school teachers and state employees cannot negotiate working conditions and can receive salary increases only up to the level of inflation. A typical public elementary school teacher who began teaching in Wisconsin in 2021 at age 22 earned a salary of about $40,000. What would be the purchasing power in today’s dollars of her salary when she retires in 2063 at age 65 if each year her salary increase exactly matches inflation?

Answer 1

Explanation:

To determine the purchasing power of the teacher's salary in today's dollars when she retires in 2063, we need to adjust her future salary for inflation using an inflation rate projection.

According to the US Bureau of Labor Statistics, the average inflation rate over the past 20 years has been approximately 2.0%. Assuming that inflation continues at a similar rate for the next 42 years until the teacher's retirement in 2063, we can use the following formula to adjust her future salary:

Adjusted salary = Starting salary * (1 + inflation rate)^number of years

The number of years from 2021 to 2063 is 42, so we can plug in the values and calculate:

Adjusted salary = $40,000 * (1 + 0.02)^42

Adjusted salary ≈ $94,366.88

Therefore, the purchasing power of the teacher's salary in today's dollars when she retires in 2063 would be approximately $94,366.88.