You have estimated your future retirement income needs and, after taking Social Security into account,you have determined that you will have an pretax income shortfall of $100,000 in your first year ofretirement at age 65. How much will you need to have saved by then, assuming you want to have yourretirement income increase with inflation, but are willing to spend down your principal over time?Assume that you will live for 40 years in retirement, inflation will average 3% and you can earn 7% on yourinvestments. (Hint: Use the inflation - adjusted annuity equation). You have estimated your futureretirement income needs and, after taking Social Security into account, you have determined that youwill have an pretax income shortfall of $100,000 in your first year of retirement at age 65. How much willyou need to have saved by then, assuming you want to have your retirement income increase withinflation, but are willing to spend down your principal over time? Assume that you will live for 40 years inretirement, inflation will average 3% and you can earn 7% on your investments. (Hint: Use the inflation -adjusted annuity equation). 1,924,630 1,625,368 1,955,400 872,901

Retirement Income Shortfall and Savings NeededRetirement Income Shortfall: You have determined that…

Answered: You have estimated your future…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section5.A: Continous Compounding And Discounting

Problem 1P

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Suppose that your retirement benefits during your first year of retirement are $60,000 per year which is just enough to meet your cost of living during the first year. However, your cost of living is expected to increase at an annual rate of 5% due to inflation. If there is no cost-of-living adjustment in your retirement pension, then some of your future living cost has to come from savings other than retirement pension. If your saving account earns 7% interest a year, how much should you set aside in order to meet this future increase in the cost of living for 25 years? O $428,985.67 O S1,128,200.66 O $699,214.99 O $34,960.75
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