Question

if my medical expenses are $30,000 per year for 35 years with inflation at 5.13% how much money would I have to put in an interest bearing account with a 5% return to cover all medical expenses and the account be $0 at the end of 35 years

Answer 1

$1,021,337.13

Explanation:

The sum of present values of medical expenses is ...

30,000/1.05 +30,000(1.0513)/1.05^2 +30,000(1.0513^2)/1.05^3 +...

So, the series has an initial value of 30,000/1.05 and a common ratio of 1.0513/1.05. Its sum is given by ...

S = a(r^n -1)/(r -1)

where a = 30,000/1.05, n = 35, r = 1.0513/1.05.

Filling in these values and doing the arithmetic, we get ...

S = $1,021,337.13

You need an initial deposit of $1,021,337.13 to cover rising expenses for 35 years.