How much do you need to contribute this year to afford

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Question: You are planning to retire in 30 years. You want to be able to spend $40,000 per year in retirement, adjusted for inflation (so you will spend the equivalent in each year of $40,000 in today's dollars). You will withdraw your retirement spending at the end of each year. So your first retirement withdrawal will be at the end of year 31. Assume you will live for 25 years after retirement and the effective annual interest rate (EAR) is 8% throughout.

Before retirement, you are planning to contribute to your savings once a year for the next 30 years, at the end of each year. For the first 10 years, you will contribute the same amount. However, at the end of year 11, you will double the annual savings contribution amount but keep it fixed for the remaining 20 years. (So the annual savings contribution amount for years 11 through 30 is twice the amount for years 1 through 10.) How much do you need to contribute this year to afford your retirement plans?

Reference no: EM133368945

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