Bowie, age 52, has come to you for help in planning his retirement. He works for a bank, where he earns $60,000. Bowie would like to retire at age 62. He has consistently earned 8% on his investments and inflation has averaged 3%. Assuming he is expected to live until age 95 and he has a wage replacement ratio of 80%, how much will Bowie need to have accumulated as of the day he retires to adequately provide for his retirement lifestyle?

Bowie will require  saving for $1,101,832.05 to achieve their goal.

Explanation:

He expect to have wages 800% of what he currently owns:

60,000 x 80% = 48,000

Now, this will increase 3% per year for inflation reasons:

Principal48,000.00

time10.00

rate0.03000

Amount64,507.99

Now, we solve for the present value of an annuity of 33 year (95 - 62) with a real rate according to Irwin method of:

1.08/1.03 - 1 = 0.048543

C64,507.99

time33

rate0.048543

PV$1,101,832.0536

answer: b 56, 250

explanation:

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