Answer:
$1,064,440.24
Explanation
Age = 45
Retirement = 65 (Retires after 20 years)
Death = 90 (After 25 years of retirement life)
Inflation = 3%
Rate of Return = 9%
Annual Salary = $75,000
Wage replacement ratio = 80%
Retirement Income = $75,000 * 80% = $60,000
Amount required in future to match the current purchasing power
Inflation effect = $60,000 * (1 + 3%)^20
Inflation effect = $60,000 * (1.03)^20
Inflation effect = $60,000 * 1.80611123467
Inflation effect = $108366.6740802
Inflation effect = $108,366.67. ($108,366.67 is needed to Match Purchasing power of $60,000 in 20 Years)
Total amount needed at the age of 65
i = 9%, Fv = 0, Nper = 25, PMT = -$108,366.67
= PV(9%, 33, -108,366.67, 0)
= 1064440.243
= $1,064,440.24
So, Barry need to accumulated $1,064,440.24 as of the day he retires to adequately provide for his retirement lifestyle.
