You wish to retire at age 50 and figure you need $75,000 per year in retirement

ID: 2741765 • Letter: Y

Question

You wish to retire at age 50 and figure you need $75,000 per year in retirement in today’s dollars.

Assume that payments are at the beginning of the year (as opposed to monthly to simplify).

How much do you need when you turn 50 to meet your retirement dream?

Assume no increase in annual payments during retirement.

Also assume a life expectancy of 100 years (you will live to 100).

Also assume a discount rate of 5%

What if inflation during retirement is 2% per year, how much do you now need?

Solution.

Calculation of present value of future amount.

Total required amount in retairment period = $75,000 x 50 = $3,750,000.

So at the date of retirement they should have...

= $3,750,000. x 0.0872 = $327,000

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.