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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Business

Jovani Branch

4 July, 16:34

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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Emmalee Romero · 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.