Question

An individual wants to retire in 15 years when he turns 65. He wants to have enough money to maintain his current income, which is $55,000 per year. It is assumed that a 6% annual investment rate of return and a 4% inflation rate per year. He expects that he will live to be 90 years old. He expects his raises to equal the inflation rate, approximately how much does he need at retirement to fulfill his retirement goals

Answer 1

Value at retirement= $1,187,719.21

Step-by-step explanation:

If his salary increases at the same rate as inflation, the purchasing power remains constant. The growth rate and inflation rate should not be taken into account. They are irrelevant.

First, we need to calculate the value of the account at the time of retirement. To do this, we determine the future value, then the present value.

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {55,000*[(1.06^35) - 1]} / 0.06

FV= $6,128,912.90

PV= FV/(1+i)^n

PV= 6,128,912.90 / (1.06^35)

PV= $1,187,719.21