Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $55,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 3%. He currently has $135,000 saved, and he expects to earn 8% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Instructions are listed below.

Explanation:

Giving the following information:

Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $55,000 has today.

Annual inflation is expected to be 3%. He currently has $135,000 saved, and he expects to earn 8% annually on his savings.

We weren't provided with the requirements. Therefore I will answer in two different ways:

a - to reach the goal the money will be deposit all in once.

b - to reach the goal the money will be deposit in annual payments.

First, we need to calculate the total money required at the age of 60.

FV = PV * (1+i) ^n

i = 0.08 - 0.03 = 0.05

n=10

PV = 135,000

FV = 135,000 * (1.05^10) = 219,900.77

Total retirement needed = 55,000*24 = 1,320,000

Total money needed = 1,320,000 - 219,900.77 = 1,100,099.23

A) Lump sum:

PV = FV / (1+i) ^n

PV = 1,100,099.23/1.05^10 = $675,365.50

B) Annual deposit:

FV = {A*[ (1+i) ^n-1]}/i

A = annual deposit

Isolating A:

A = (FV*i) / {[ (1+i) ^n]-1}

A = (1,100,099.23*0.05) / [ (1.05^10) - 1] = 87,462.92