Steve is planning for his retirement. He is currently 37 and plans to retire in 26 years,
Question:
Steve is planning for his retirement. He is currently 37 and plans to retire in 26 years, at age 63. He expects then to live an additional 34 years, until age 97. He expects inflation to average 5% per year. He believes he can earn a nominal return on his retirement investments of 8% per year before retirement, and 6% per year after retirement. Based on his assumptions about investment returns, inflation and Social Security, and his desired Wage Replacement Rate, he believes he will need to accumulate $2,000,000 in nominal terms by the day of his retirement in order to produce enough income to achieve his retirement income goal. Use the Annuity method with the Dalton approach.
How much does he need to contribute to his retirement fund at the end of each year to accumulate enough by the day he retires?
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham