Suppose you think that $50,000 per year in today’s dollars would be enough to sustain you in retirement. You plan to retire in 48 years at age 70 and expect to live for 20 years in retirement.

a. How many constant dollars will you need in 48 years to sustain your retirement if your payout-period real return is 2% (4% nominal)?

b. How much will you need to contribute per year (per month) during your 48 working years to accumulate the amount you computed above if your accumulation-period real rate is 7% (9% nominal)?

c. What happens to your answers if inflation turns out to have been 4.0% instead of the 2% rate that it has been over the last several decades?

Answer rating: 100% (QA)

To calculate the amount you would need in retirement in constant dollars the annual contribution required and the effect of a different inflation rate ... View the full answer