Question

Peter and Blair recently reviewed their future retirement income and expense projections. They hope to retire in 26 years and anticipate they will need funding for an additional 15 years. They determined that they would have a retirement income of ?$49,000 in? today's dollars, but they would actually need ?$67,571 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

Answer 1

Cuurent shortfall
Retirement income		$ 49,000.00
Need		$ 67,571.00
Shortfall in todays dollars		$ 18,571.00
Shortfall in 26 years (adj for inflation at 4%)		18571*(1+4%)^26
Shortfall in 26 years (adj for inflation at 4%)		$ 51,487.54
Required amount to compensate shortfall (26 yrs hence)		$ 51,487.54
Rate of return		8%
Required amount to save now		51487.54/(1+8%)^26
Required amount to save now		$    6,961.21