You plan to retire in 30 years and want to accumulate enough by then to have $40,000 per year for 20 years. If the interest rate is 8%, how much must you accumulate by the time you retire? [Formula required]
How much must you save each year until retirement in order to finance your retirement consumption? [Calculator acceptable]
You remember that the expected annual inflation rate is 2%. If a loaf of bread costs $1 today, what will it cost by the time you retire? [Formula required]
You really want to consume $40,000 a year in real dollars during retirement and wish to save an equal real amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire? [Use simplified method to calculate real rate of interest][Calculator acceptable to calculate amount of savings required]
Calculate the required pre retirement real annual savings necessary to meet your consumption goals. [Calculator acceptable] Compare your answer to part (b). Why is there a difference?
What is the nominal value of the amount you need to save during the first year? (Assume the savings are put aside at the end of each year.) The 30th year? [Formula required for both answers]