Question

. If prices are expected to increase by 3% per year, how much do you need in your retirement account if you want $3,000 per month in today’s dollars, you expect to retire in 35 years, the rate of return on your retirement account is 6% and you want to receive money from your account for 25 years after you retire? Also how much do you need to save each month for the next 35 years so that you can have the amount you need?

Answer 1

First, we have to find how much do you need monthly after the retirement with an inflation at 3% per year

montly payment needed= 3000*(1+(3%)/12)^(35*12)

=$8,561.727

Then we have to find the corpus needed after 35 years to fund for next 25 years. For that, we can use PV function in EXCEL

=PV(rate,nper,pmt,fv,type)

rate=6%/12=0.5%

nper=12*25=300

pmt=$8,561.727

=PV(0.5%,300,-8561.727,0,0)

PV=$1,328,838.86

To made corpus of $1,328,838.86 for 35 years with monthly payments, we have to use PMT function

=PMT(rate,nper,pv,fv,type)

nper=12*35=420

rate=0.5%

=PMT(0.5%,420,0,1328838.86,0)

PMT=$932.71

You have to deposit $932.71 each month to accumulate $1,328,838.86 for 35 years.