Question

How much do I need to retire? Here are your assumptions. You are 30. You will retire when you are 65. You want $40,000 a year when you retire. You will be an aggressive investor today and have an average market return of 9%. When you retire, you will be conservative in your investing and get into bonds that have a market return of 4.5%. You expect that inflation will be 3%. You currently have $20,000 you put into the market this morning. You are expecting to live until 85. How much do you need to have saved when you turn 65? (Hint: if you want to work out how much you need to save every year, under PMT, it will be 36 years)

Answer 1

The amount to be saved at the age of 65 is $1940755.74

Step-by-step explanation:

To calculate the amount needed at 65 including inflation = 40000 * 1.0336 = 115931.13

Present Value of Growing Annuity = PMT / (r-g) [ 1 - {(1+g)/(1+r)}n ]

= 115931.13 / (0.045 - 0.03) [ 1 - (1.03/1.045)20 ]

= 7728742.2 * 0.2511089

= 1940755.74