Question

Assume that you will retire in 30 years. You plan to be retired for a total of 30 years. You wish to withdraw the equivalent of $50,000 per year (in today's dollars) from your retirement fund each year that you are retired. Assume that there will not be any adjustments for inflation during your retirement–you will withdraw the same dollar amount every year that you are retired. The expected inflation rate for the next 30 years is 3%. You can earn 10% on your investments prior to retirement and you plan to earn 7% on your investments during retirement. How much do you need to invest each month (beginning right now) in order to be able to afford to retire?

Answer 1

To afford retirement, you would need to invest approximately $805.25 per month.

Step-by-step explanation:

To calculate how much you need to invest each month to afford your retirement, you can use the present value of an annuity formula. The formula is:

PMT = PV * (1 - (1 + r)-n) / r

Where:

• PMT = Payment per period (in this case, monthly)
• PV = Present value of the annuity (the amount you need for retirement)
• r = Interest rate per period (in this case, monthly)
• n = Total number of periods (30 years)

Using this formula and the given information, the monthly payment (PMT) needed to afford retirement would be approximately $805.25.