Peter and Blair recently reviewed their future retirement income and expense pro
ID: 2799346 • Letter: P
Question
Peter and Blair recently reviewed their future retirement income and expense projections. They hope to retire in 3535 years and anticipate they will need funding for an additional 2525 years. They determined that they would have a retirement income of $56,000 in today's dollars, but they would actually need
$77,040 in retirement income to meet all of their objectives. Calculate the total amount that Peter and Blair must save if they wish to completely fund their income shortfall, assuming a 33 percent inflation rate and a return of 11 percent.
Question - The total amount that Peter and Blair must save if they wish to completely fund their income shortfall, assuming a 33 percent inflation rate and a return of 11 percent is $___________ (Round to the nearest cent.) Please provide the answer.
Compound Sum of $1 (FVIF)
n
2.00%
3.00%
4.00%
5.00%
24
1.6084
2.0328
2.5633
3.2251
252
1.6406
2.0938
2.6658
3.3864
26
1.6734
2.1566
2.7725
3.5557
27
1.7069
2.2213
2.8834
3.7335
28
‘1.7410
2.2879
2.9987
3.9201
29
1.7758
2.3566
3.1187
4.1161
30
1.8114
2.4273
3.2434
4.3219
31
1.8476
2.5001
3.3731
‘4.5380
32
1.8845
2.5751
3.5081
4.7649
33
1.9222
2.6523
3.6484
5.0032
34
1.9607
2.7319
3.7943
5.2533
35
1.9999
2.8139
3.9461
‘5.5160
Present Value of an Annuity (PVIFA)
n
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
13
11.3484
‘10.6350
9.9856
9.3936
8.8527
8.3577
7.9038
7.4869
7.1034
14
12.1062
11.2961
10.5631
9.8986
‘9.2950
8.7455
8.2442
7.7862
7.3667
15
12.8493
11.9379
11.1184
10.3797
9.7122
9.1079
8.5595
8.0607
7.6061
16
13.5777
12.5611
11.6523
10.8378
10.1059
9.4466
8.8514
8.3126
7.8237
17
14.2919
13.1661
12.1657
11.2741
10.4773
9.7632
9.1216
8.5436
8.0216
18
‘14.9920
13.7535
12.6593
11.6896
10.8276
10.0591
9.3719
8.7556
8.2014
19
15.6785
14.3238
13.1339
12.0853
11.1581
10.3356
9.6036
8.9501
8.3649
20
16.3514
14.8775
13.5903
12.4622
11.4699
10.5940
9.8181
9.1285
8.5136
21
17.0112
‘15.4150
14.0292
12.8212
11.7641
10.8355
10.0168
9.2922
8.6487
22
17.6580
15.9369
14.4511
‘13.1630
12.0416
11.0612
10.2007
9.4424
8.7715
23
18.2922
16.4436
14.8568
13.4886
12.3034
11.2722
10.3711
9.5802
8.8832
24
18.9139
16.9355
‘15.2470
13.7986
12.5504
11.4693
10.5288
9.7066
8.9847
25
19.5235
17.4131
15.6221
14.0939
12.7834
11.6536
10.6748
9.8226
‘9.0770
26
'20.1210
17.8768
15.9828
14.3752
13.0032
11.8258
‘10.8100
‘9.9290
9.1609
27
20.7069
‘18.3270
16.3296
‘14.6430
13.2105
11.9867
10.9352
10.0266
9.2372
Compound Sum of $1 (FVIF)
n
2.00%
3.00%
4.00%
5.00%
24
1.6084
2.0328
2.5633
3.2251
252
1.6406
2.0938
2.6658
3.3864
26
1.6734
2.1566
2.7725
3.5557
27
1.7069
2.2213
2.8834
3.7335
28
‘1.7410
2.2879
2.9987
3.9201
29
1.7758
2.3566
3.1187
4.1161
30
1.8114
2.4273
3.2434
4.3219
31
1.8476
2.5001
3.3731
‘4.5380
32
1.8845
2.5751
3.5081
4.7649
33
1.9222
2.6523
3.6484
5.0032
34
1.9607
2.7319
3.7943
5.2533
35
1.9999
2.8139
3.9461
‘5.5160
Explanation / Answer
Shortfall in today's dollars=77040-56000=21040
Retire in 35 years
Funding for 25 years
Real return=(1+nominal)/(1+inflation)-1=1.11/1.03-1=7.767%
So, PV(7.767%,35,0,PV(7.767%,25,-21040))=16714.72
Hence, 16714 must be saved now as lump sum to cover the shortfall
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