My grandpa has his own house and all mortgage is paid off. He has savings of $180,000. The investments are yielding 9 % interest. My grandpa has $12,000 in a savings account at 5 percent interest. He wants to keep the saving account level in real terms for emergencies. ?My grandpa’s basic living expenses is about $1,500 a month but he plans to spend extra $500 a month on travel and other activities. For that my grandpa will rely on his investment portfolio. The interest on the portfolio is 9% of his $180,000 which is $16,200 a year. He will also get $750 per month in Social Security payments for the rest of his life.
The payments are indexed for inflation, so that payments will increase in proportion to changes in the consumer price index. However, my granpa is concerned with inflation because his portfolio interest will not increase with inflation like SS payments will. ?So, he needs an advice. He thinks he will live 20 more years and is willing to use up all of his investment portfolio over that period. He also wants his monthly spending to increase with inflation.
Can my grandpa maintain his planned lifestyle in retirement? What would you advise him to do? Assume that the investment portfolio continues to yield a 9 % rate of return and that inflation will be 4 %.