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Time Value Money for Retirement Planning

63. Retirement Planning. A couple will retire in 50 years; they plan to spend about $30,000 a
year in retirement, which should last about 25 years. They believe that they can earn 10 percent
interest on retirement savings.
a. If they make annual payments into a savings plan, how much will they need to save each
year? Assume the first payment comes in 1 year.
b. How would the answer to part (a) change if the couple also realize that in 20 years, they
will need to spend $60,000 on their child's college education?

74. Retirement and Inflation. Redo part (a) of problem 63, but now assume that the inflation rate over the next 50 years will average 4 percent.

a. What is the real annual savings the couple must set aside?
b. How much do they need to save in nominal terms in the first year?
c. How much do they need to save in nominal terms in the last year?
d. What will be their nominal expenditures in the first year of retirement? The last?

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Solution Summary

The solution examines the time value of money for retirement planning.