Question

You would like to start saving for retirement and you have 40 years until the planned retirement date. Each year, during your retirement years (assume 30 years), you would like to spend an amount equivalent to the purchasing power of $50,000 today. You estimate that the expected rate of return on some recommended investment portfolio is 8%AER and you plan to select that portfolio during the working (savings) years. Assume 4%AER yield on your investments during retirement years. The annual inflation rate is currently 296 and is expected to stay at that level forever. Assume you plan to increase the size of your annual deposits at the rate equal to the inflation rate? QQ: If you want to meet your goal and you agree with the assumptions, what is the size of your first savings/investment deposit ?? Note: Assume end-of-year annual payments (both savings/deposit payments and retirement withdrawals) Disregard taxes and transaction costs, but not the impact of inflation. Assume that you have no savings currently (investment amount today is 0). If now' is TO, then the first investment deposit is at T1, the last investment deposit at T40; and the first retirement withdrawal is at T41 and the last withdrawal at T70

Answer 1

40 yrs later (T41)your annual expenses will be approximately $112,610 as per today's purchasing power, your first annual investment at T1 should be $8,616