Question

Peter and Blair recently reviewed their future retirement income and expense projections. They hope to retire in 34 years and anticipate they will need funding for an additional 22 years. They determined that they would have a retirement income of ​$63,000 in​ today's dollars, but they would actually need ​$87,543 in retirement income to meet all of their objectives. Calculate the total amount that Peter and Blair must save if they wish to completely fund their income​ shortfall, assuming a 4 percent inflation rate and a return of 8 percent.

.The total amount that Peter and Blair must save if they wish to completely fund their income​ shortfall, assuming a 4 percent inflation rate and a return of 8 percent is $____ ​(Round to the nearest​ cent.)

Answer 1

We are given,

Total retirement income Peter and Blair expected to have = $63,000

Total retirement income after additional savings = $87,543

Additional saving needed = Required savings - expected savings

Additional saving = 87,543 - 63,000 = 24,543

Inflation rate = 4%

Rate of return = 8%

Effective rate of return(r) = Rate of return - Inflation rate = 8% - 4% = 4%

Total savings on current date viewed 34 years later = Additional saving * (1+r)^34

= 24,543 * (1 + 0.04)^34 = $93,123.9.

Hence the total amount that Peter and Blair must save if they wish to completely fund their income​ shortfall is $93,123.9.

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