Today is your 35th birthday and it occurs to you that your current retirement savings may be insufficient to maintain for you the lifestyle to which you have become accustomed. • The value of your retirement account today on your 35th birthday is $100,000.
- You plan to retire on your 65th birthday and to live until the day before your 83rd birthday.
- Your goal is to have a stream of cash payments on your 66th through 82nd birthdays that provides you with $150,000 of consumption annually in terms of today's purchasing power.
- Your retirement account earns 10% per year (this is the effective annual rate), and the inflation rate is 2% forever.
- Ignore the value of your other assets and perform calculations as if deposits, withdrawals, and compounding of interest occur only once a year.
What constant nominal amount would you have to deposit on each of your 36th through 65th birthdays to ensure that the balance is the amount in on your 65th birthday, as calculated in Question 2? Take into account the $100,000 you already have in your retirement account.
The answer to number 2 is 2,504,533.