If your current expenses are $55,000 a year today, using the replacement ratio method of estimating retirement expenses, what is the minimum income you would need 40 years from now, assuming inflation is 2.5%?

Question

Quizplus · Accepted Answer

The replacement ratio method assumes that you will need the same amount of income in retirement as you do today, adjusted for inflation. To calculate the minimum income you would need 40 years from now, you need to multiply your current expenses by the inflation factor raised to the power of the number of years in the future. In this case, the inflation factor is 1.025 (1 + 2.5%) and the number of years in the future is 40. So, the minimum income you would need 40 years from now is $55,000 * 1.025^40 = $103,375.

If Your Current Expenses Are $55,000 a Year Today, Using