Saving for a Retirement Goal

Erika wants $50,000 a year in today’s dollars in retirement. She anticipates retiring in 10 years and living in retirement for 30 years. Erika can earn 7% on her investments and she expects inflation to average 4%. Approximately how much should Erika have saved by the day she retires to meet this goal?

$913,000
$983,000
$1,473,000
$1,515,000

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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 she retires as follows: n = 10, I = 4, PV = 50,000, PMT = 0 solve for FV which is $74,012. The second step is to solve the lump sum needed to fund the retirement distributions for 30 years as follows: n = 30, I = [1.07/1.04 – 1] x 100 = 2.8846, PMT = 74,012, FV = 0 solve for PV using BEG mode which is $1,515,023.

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