By the end of each year, you contribute an equal amount of $3,000 to your retire

Question

By the end of each year, you contribute an equal amount of $3,000 to your retirement fund portfolio, which on average earns an annual return of 12.5%. The contribution continues until your retirement. You retire in 30 years and take equal draws for 20 years.

Using Microsoft Excel Finance Formulas Considering the long-term inflation rate amounts to 3.5% annually, how much money at real purchasing power will you actually have when you retire? How much should you withdraw and spend per year at real purchasing power for your post-retirement life? (Hints: Your “annual return of 12.5%” is just “nominal as stated” in this case, but the annual real return will be less than the given nominal return with the annual inflation being adjusted for. For example, your boss gives you an annual salary raise of 3%, but how much real-purchasing-power “raise” you are getting per year actually, if there is an annual inflation eating up your money growth?)

Explanation / Answer

Amount accumulated in 30 yrs. @( 12.5-3.5)=9% for an annuity of 3000= Using FV of an odinary annuity formula, FV= 3000*((1+0.09)^30-1)/0.09) 408923 Money at real purchasing power when you retire in 30 years will be 408923 Amount that can be withdrawn and spend per year at real purchasing power for the post-retirement life will be : Using the PV of Annuity formula for a period of 20 Yrs. 408923=x*(1-(1+0.09)^-20)/0.09 Annuity will be = 44796

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