You are contributing to your 401k each year with a goal of having enough in retirement to provide $4,000 per month in today’s dollars. You plan to work 20 more years making monthly contributions to your 401k. Once you retire, you anticipate living another 25 years. Assume you wish to have nothing left when you pass away, Assume you can earn an average of 7% over your time period.
a. If inflation is expected to remain low, what would the $4,000 per month in today’s dollars be once you retire in 20 years. Use the 20 year period to determine that inflation adjusted amount. In other words, if inflation continues at a 3% rate what will it take in 20 years to have the same purchasing power as your $4,000 today? For ease, use annual periods to determine this.
b. Now, using the number you found in part a and assuming that number remains constant for the 25 years of retirement, how much must you have in your retirement fund upon retirement in 20 years?
c. Given the results in part b, how much must you save MONTHLY for the next 20 years to meet that goal?