Question

Suppose that you are just about to retire, and you just turned 65. Your personal and family health history is such that you forecast that you will live to age 79.

In retirement, you would like to have purchasing power of $60,000 (i.e., real dollars) before taxes. Suppose, for our example, that you anticipate receiving $20,000 in inflation-adjusted Social Security payments each year. Hence, your portfolio will need to provide $40,000 in real dollars each year. Assume that each payment is at the start of each year in retirement, where the first payment is immediately. How much do you need to have in your retirement account at retirement (in real dollars)? Assume that your portfolio earns a real annual rate of return of 6.44%, compounded annually during retirement.

Do not round at intermediate steps in your calculation. Round your answer to the nearest dollar. Do not type the $ symbol.

Answer 1

Note - in the PVAF formula, " i " denotes interest rate, which is = 6.44%

= 0.0644 (in numerals)

Also, " n " is number of period from age of 66 till 79, which is 14 years

Therefore, computation of PVAF is done accordingly using Calculator.