Question

Question 4 1 pts Your clients want help figuring out how much they need to save each month so that they can reach their retirement goal. If your clients are currently 37 years old and want to retire when they are age 62, how much do they need to save at the end of each month to reach their goal? They currently have $180,000 saved for retirement. Assume the following: • Your clients currently spend $70,000 (in today's dollars), and they want to spend 90% of that in retirement • General inflation is about 2.9% per year • Your clients can earn an annual rate of return of 6.8% on their investments • Your clients are both the same age and want to retire at the same age • You estimate that your clients' planning horizon should be until age 95 • Your clients don't plan on leaving any money to their children when they die

Answer 1

Working Period = 25 years (62 years -37years )

Savings = $180,000

Estimated Monthly Expense after Retirement = $ 63,000 (90% of $70,000)

Life after Retirement = 28 Years (95-67)

Total Expense after Retirement = 1764000‬ ($ 63000 * 28 Years)

Total Investment Return =3.9% (6.8% -2.9%)

Total Amount Required for Achieving the goal = ‭$1584000‬ ($1764000 - $180,000)

Total Amount to be saved per month can be calculated using formula

FV =P × ((1 + i)ⁿ - 1) / i) × (1 + i)

FV= Future Value

P= amount invested per month

n= number of payments(25*12=300)

i= interest rate

P=FV/((1 + i)ⁿ - 1) / i) × (1 + i)

P=1584000‬ /((1+(3.9/12)^300-1)/300)*(1+300)

P=$3,080

So the clients should save at least $3,080 per month to reach the retirement goal