Question: Chris is planning his retirement and said that he would be financially comfortable with $2,000,000. Currently, Chris is 25 and plans to retire at 60. Chris has three investment alternatives that offer 5.5%, 7.00%, and 8.50% investment return.
1. How much money must he save each month to achieve his retirement goal under each of the three return rates?
2. How much money can he spend each month if he plans on dying in 30 years, after retirement, and wishes to die with $500,000 left for his heirs (assume a 5% interest rate)?
3. Inflation reduces the purchasing power of savings over time. What is the purchasing power in today's dollars, inflation adjusted, of the $2,000,000 at the time of retirement, assuming annual compounding? To determine the expected inflation rate over thirty years, compare todays 30-year US Treasury yield to the 30-year US Treasury Inflation Indexed yield. The difference between the 30 year UST and the 30 year UST Inflation Indexed Bond is the expected average inflation over 30 years.