Calculations

Question 1

Retirement Planning

Answer 1

Step 1. Inflate the annual need in today’s dollars

Step 2. Determine what lump sum is needed at beginning of retirement

Question 2

If a client can earn 9% after-tax investment return and inflation is 3% what is the adjusted interest rate?

Answer 2

(1.09/1.03) - 1 x 100 = 5.82%

Question 3

A client wants to receive the equivalent of $10,000 in todays dollars at the beginning of each year for the next 4 years. If he can earn 8% after tax on investments, how much must be invested today to fund this need if inflation is 5%

Answer 3

(1.08/1.05) - 1 x 100 = i

10,000 = PMT

4 = n

Solve for PV = $38,363 (BEG mode)

Question 4

Client wants to accumulate retirement funds to maintain her lifestyle of $50,000 assuming 4% inflation rate and a 8% growth rate

Answer 4

1. Inflate need in todays dollars

PV = 50,000
N = 20
i = 4
Solve FV = $109,556

Accumulation Phase = 20 years

2. Determine lump sum is needed at beginning of retirement

Begin Mode
n = 25 years of retirement 
i = 3.8462 ---- real rate of return
PMT = 109,556
Solve for PV = $1,806,557 -- amount needed to fund retirement