If you expect to retire in 25 years and have estimated that you will need $45,000 per year in today's dollars, how much will you need in the first year of retirement assuming a 5% average inflation rate?

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for calculating the future value of an annuity is:FV = PMT * [(1 + r)^n - 1] / rwhere:PMT is the annual paymentr is the annual interest raten is the number of yearsIn this case, we have:PMT = $45,000r = 5%n = 25Plugging these values into the formula, we get:FV = $45,000 * [(1 + 0.05)^25 - 1] / 0.05= $45,000 * [3.38635 - 1] / 0.05= $45,000 * 2.38635 / 0.05= $152,386.25Therefore, the amount needed in the first year of retirement is $152,386.25.

If You Expect to Retire in 25 Years and Have