You recently inherited $100,000. You plan to save $8,000 during the next year (year 1) and increase that amount by 5% per year until you retire in 35 years. During that period, you plan to plan to invest entirely in stocks that are expected to earn 11% per year. During retirement, you plan to invest in safer investments that earn 6% per year. The expected inflation rate is 2.5%.
a) If you plan as if you will live forever and you wish to maintain constant annual purchasing power during retirement, how much can you withdraw each year during retirement?
b) What is the purchasing power of those annual withdrawals in today's dollars?