Question

A couple will retire in 30 years; they plan to spend about $ 106,850 a year in

retirement, which should last about 24 years. They believe that they can earn 8
percent interest on retirement savings. How much do they need to have saved in 30
years in order to afford their retirement?
Your Answer:

Answer 1

To calculate how much the couple needs to have saved in 30 years to afford their retirement, we can use the future value formula for compound interest:

Future Value = Present Value * (1 + Interest Rate)^Time

Where:
- Future Value is the amount needed for retirement
- Present Value is the amount to be saved
- Interest Rate is the annual interest rate
- Time is the number of years

In this case, the couple plans to spend $106,850 per year in retirement, which will last 24 years. They believe they can earn an 8% interest rate on their retirement savings. Therefore, we need to find the Present Value (amount to be saved) in 30 years.

Using the formula, we have:

Future Value = $106,850 * 24 = $2,564,400
Interest Rate = 8% = 0.08
Time = 30 years

Now we can rearrange the formula to solve for the Present Value:

Present Value = Future Value / (1 + Interest Rate)^Time

Present Value = $2,564,400 / (1 + 0.08)^30

Calculating this, the couple needs to have approximately $429,577.89 saved in 30 years in order to afford their retirement expenses.