Question

Question 3 1 pts In order for your clients to reach their retirement goal, let's say you've estimated that they need to have $2,800,000 accumulated by the time they retire at age 66. To reach that goal, how much do they need to save at the end of each month if they are currently 40 years old? They currently have $130,000 saved for retirement. Assume general inflation averages 3.4% per year, and based on their risk tolerance, your clients can earn an annual rate of return of 6.7% on their investments.

Answer 1

Inflation Adjusted Return= ((1+Return)/ (1 +Inflation Rate))-1

Inflation Adjusted Return=((1+0.067)/(1+0.034))-1

=(1.067/1.034)-1

=1.031915

Client has already saved 1,30,000$.

Future value of this after 26 years= 1,30,000*(1+0.031915)^26

=2,94,228$

Amount of future value to be covered= 28,00,000-2,94,228

=25,05,772$

Annual savings= Future value/((1+inflation adjusted return)^no of yrs)

=25,05,772/(1.031915)^26

=25,05,772/17.4892

=1,43,275$

Amount to be saved yearly= 1,43,275$