Question

During retirement, Simone expects to earn an annual nominal return of 9% before tax (compounded annually) on her savings. She would like to draw an annual income of $35,000, at the beginning of each year, for 25 years, indexed for 1.5% annual inflation. How much money does Simone need at the beginning of retirement to support this stream of payments?

Answer 1

Here simone expected to earn a nominal return of 9% and wanted to draw 35,000 for 25 years at an inflation rate of 1.5%

Assuming the same example

current annual expenses 7,20,000

inflation rate to be 7% expenses at retirement turns out to be 54,80,824

later, taking the indexed inflation rate 0.93, for 25 years we will calculate the corpus required i.e = 12,28,23,871

assuming the number of years to retirement is 30 and the rate of return to be 14% the corpous we need is 12,28,23,871$ and savings required are 22,360