You would like to retire in 30 years. The expected rate of inflation is 2% per year. You currently have a standard of living that requires $7940 of monthly expenses. Assuming you want to maintain the same standard of living in retirement, what are your monthly expenses expected to be the first year of retirement

Question

Kaydence Johnson

Business

4 June, 01:15

You would like to retire in 30 years. The expected rate of inflation is 2% per year. You currently have a standard of living that requires $7940 of monthly expenses. Assuming you want to maintain the same standard of living in retirement, what are your monthly expenses expected to be the first year of retirement

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Thaddeus Kennedy · Answer 1

You would need $14,382.21 to maintain your purchasing power.

Explanation:

Giving the following information:

You would like to retire in 30 years. The expected rate of inflation is 2% per year. You currently have a standard of living that requires $7940 of monthly expenses.

The inflation rate has the same intrinsic behavior as an investment with a compounded interest rate.

We need to use the following formula:

FV = PV * (1+i) ^n

FV = 7,940 * (1.02^30)

FV = $14,382.21

You would need $14,382.21 to maintain your purchasing power.