Question

1. Bob needs to replace an income stream of $55,000 for 20 years during retirement. He assumes inflation will be 3% and he can earn 5% on his investments during retirement.

If he begins saving money at age 22 and retires when he is 65, he can earn 10% annually, how much will he need to contribute monthly to meet his goal?

Answer 1

Bob will retire at 65 years of age and will need income stream during retirement of $55,000 for 20 years.

Therefore, he will need a total income for 20 years as below -

Thefore he will need $959,405 in his retirement at age 65 years

Since he is 22 years old right now he will have 43 years or 516 months to invest

Therefore, monthly investment he has to make (PMT) = $112, where FV = $959,405, rate = 10%, n = 516, compunding monthly