Lee is 26 and wants to retire at 65 with a retirement fund from which he can draw an interest income of $150,000 a year. He assumes he will have an average rate of return of 6%. He wants to know how much he needs to save each month to reach his goal and how inflation will affect his retirement savings.

In order to earn $150,000 per year in interest, the balance of Lee's retirement account must be large enough that 6% of the balance is $150,000.

Lee finds a 401K retirement account with a 6% rate of return compounded monthly. He uses the Payment function in Excel to find the amount he needs to save each month to reach his goal.

Use the PMT funciton to find the monthly payment

Now Lee wants to know how inflation will affect his retirement savings.

Use the given Buying Power equation to find out how an average inflation rate of 3% will affect Lee's yearly retirement amount of $150,000.