James Coulter is the cofounder and co-CEO of TPG Capital. He is now 32 years old

Question

James Coulter is the cofounder and co-CEO of TPG Capital. He is now 32 years old and plans to retire in 35 years. He expects to live for another 23 years after he retires, that is, until he is 90 years old. James wants a fixed retirement income of $200,000 per year that pays at the beginning of each year during retirement. He expects a return before retirement of 8% and a return during retirement of of 6%. The inflation rate will be 4%. How much should he save each month to meet his retirement goals?

Explanation / Answer

First we will use PV of annuity due formula to find the required balance for retirement fund

= payment * (1 + r) * (1 - (1+r)^-n)/r

= 200000 * (1.06)*(1 - 1.06^-23)/.06

= $2460675.8

now we will find the monthly payment using future valueof anuuity formual

$2460675.8 = monthly payment * ((1+r/12)^(12*n) - 1)/(r/12)

monthly payment = $1387.11

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