Question

g Bob estimates when he retires in 20 years, he will need to have $2,000,000 to finance his desired retirement lifestyle. He believes inflation will average 2% over time and their retirement investment return will average 6% until he retires. After retirement, he will invest more conservatively and the portfolio will average a 5% return during a 25 year retirement. If he currently has nothing saved for retirement, what initial amount must he save if his intention is to increase his retirement fund contribution at the inflation rate each year to meet the savings goal

Answer 1

Answer:

Bob will need to contribute $43,704.39

at the end of each period to reach the future value of $2,000,000.00.

Explanation:

a) Data and Calculations:

Period when Bob estimates to retire = 20 years

Desired Future retirement funds = $2,000,000

Average inflation rate over time = 2%

Retirement investment returns = 6%

Expected interest rate = 8% compounded annually (6 + 2)%

Using an online finance calculator,

Bob will need to contribute $43,704.39 at the end of each period to reach the future value of $2,000,000.00.

FV (Future Value) $1,999,998.68

PV (Present Value) $429,096.13

N (Number of Periods) 20.000

I/Y (Interest Rate) 8.000%

PMT (Periodic Payment) $43,704.39

Starting Investment $0.00

Total Principal $874,087.78

Total Interest $1,125,910.9