I need some help with this homework problem, would appreciate it.
You estimate that by the time you retire in 35 years, you will have accumulated savings of $2 million. If the interest rate is 8% and you live 15 years after retirement, and assume there is a 4% inflation rate, work out a spending program for your retirement that will allow you to increase your expenditure in line with inflation.
So from what I see, the yearly expenditure increases by a factor of 1.04, and the leftover savings earn an interest rate of 8%.
I assume that the savings are withdrawn at the start, so at the start of yr 1, .., start of yr 15.
Ok, so my workings are
[C/(r-g)]x[1-((1+g)/(1+r))^n]x(1+r) = PV
where PV = 2,000,000 r=0.08, g=0.04.
I obtain C = 171,361.66 So the first payment at the start of year 1 is C, the 2nd payment is C*1.04, ..., the 15th payment is C*1.04^14.