A retiree wants level consumption in real terms over a 30-year retirement. If the inflation rate equals the interest rate she earns on her $459,000 of savings, how much can she spend in real terms each year over the rest of her life?

Given Information:

Time period = n = 30 Years

Amount = P = $459,000

Inflation rate = interest rate

Required Information:

Spending per year = ?

Answer:

She can spend $15,300 per year

Step-by-step explanation:

Lets assume that interest rate is x

Real rate = Interest rate - inflation rate

since it is given that Inflation rate = interest rate

Real rate = x - x

Real rate = 0

Therefore, the retiree can spend

$459,000/30 = $15,300 per year

Real rate = Interest rate - Inflation rate

Here, real rate will be ZERO.

When real rate of return os ZERO annual saving will be Value/Years.

Hence, available real annual savings is $15,300 ($459,000/30)