Retirement Funding Calculation

Tom wants $70,000 a year in today’s dollars in retirement. He anticipates retiring in 15 years and living in retirement for 30 years. Tom can earn 6% on his investments and he expects inflation to average 4%. Approximately how much should Tom have saved by the day he retires to meet this goal?

$1,021,221
$1,573,041
$2,321,578
$2,908,429

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D is the answer. The first step to solving this problem is to determine the retirement distribution in the first year he retires as follows: n = 15, I = 4, PV = 70,000, PMT = 0 solve for FV which is $126,066.04. The second step is to solve the lump sum needed to fund the retirement distributions for 30 years as follows using BEG mode: n = 30, I = [1.06/1.04 – 1] x 100 = 1.923, PMT = 126,066.04, FV = 0 solve for PV which is $2,908,429.82.

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