Assuming that the investor invests in the stock market every year for the next 10 years and
Question:
Assuming that the investor invests in the stock market every year for the next 10 years and expects to earn a return of 8% per annum. After the 10 years, he will sell all the stocks and withdraw the money for his retirement. The retirement period is expected to last for 25 years, and he expects to earn a return of 6% per annum during the retirement period.
a) How much money does the investor need at the start of his retirement period to be able to withdraw $50,000 per annum for 25 years, assuming the inflation rate is 3% per annum? b) If the investor decides to increase his annual withdrawal by 3% each year during the retirement period, how much money will he need to have at the start of his retirement period?
Show all calculations and explain your answers.