Joe Smith has decided to start to save for retirement. He is 25 years old and he expects to retire in 40 years. He has calculated that if he were to retire today his annual living expenses would be $65,000. He expects inflation to average 4.0%a year and that he will start withdrawing the money immediately the day he retires (on an annual basis and adjusted for inflation each year after the initial withdrawal). He expects to live until he is 90 and his financial planner has offered him a product that will produce a 10%annual return for pre and post retirement. He has decided to start contributing to his account today and he will make equal payments for the next 39 years (starting today and on an annual basis)

How much money does he need to put away each year to reach his goal? HINT: Use a real rate of return for your annuity in retirement. Please show calculations AND explain how you got your answer

Answer rating: 100% (QA)

To determine how much money Joe Smith needs to put away each year to reach his retirement goal we can use the future value of an annuity formula In th... View the full answer