Final answer:
Mrs. Beach must calculate the present value based on the interest rate for a lump sum investment that will amount to $100,000 in 25 years. Without the interest rate, the exact sum cannot be determined, but compound interest plays a crucial role in the growth of the investment.
Step-by-step explanation:
Mrs. Beach needs to determine the lump sum amount to invest today to ensure she has $100,000 when she retires at 65. To calculate this, we use the present value formula, which is based on the concept of compound interest. Assuming that she can invest the money at a fixed interest rate, we calculate the amount she would need to deposit today, which will grow to $100,000 in 25 years.
If we consider an example where a different individual saves $3,000 at an annual rate of return of 7%, after 40 years, the investment would grow to $44,923 using the compound interest formula:
3,000(1+.07)40 = $44,923.
However, without knowing the exact interest rate Mrs. Beach will receive, we cannot calculate the precise lump sum required. Financial planning often suggests that individuals should aim to retain approximately 70% of their pre-retirement income to maintain a comfortable lifestyle after retirement. This helps in understanding the magnitude of savings required relative to expected retirement expenses.