Question

I want to be earning an annual salary of $100,000 when I retire in 20 years. I have been offered a job that guarantees an annual salary increase of 4% per year, and the starting salary is negotiable. What is the lowest salary that I should request in order to meet my goal? (Round your answer to the nearest cent.)

Answer 1

The duration that we have is 20 years

the growth rate of salary per annum is 4%

Suppose the lowest salary that you should request is x which will grow at an annual rate of 4%

So when you retire in the 20th year , your salary will be (1.04^19)*x . This is because you will draw a salary of x in the first year and after that it will grow at 4% per annum

Since you want to be earning an annual salary of $100,000 when you retire in 20 years therefore you will get $100,000=1.04^19*x

this implies, x= $100,000/ (1.04^19)= 100,000/2.107= $ 47,465

Therefore you should ask minimum salary of $47,465 to be earning an annual salary of $100,000 when you retire in 20 years