Brian Ghilliotti

Financial Literacy
4/9/2016
Retirement Estimate
See assignment instructions handout for corresponding questions to answers provided.
1) I would like to retire at 80 if I am physically able to work that long.
2) Living expenses:
Expense

Weekly

Monthly

Rent

$1000

Medical Insurance

$47.00 (1)

Car Insurance

Yearly

Other

$230.00

Reinvestments

$1200.00

Home Insurance (2)

$1096.00

Car Taxes

$50.00

Property Taxes

$3600.00

Food & Hygiene

Allowance

$300.00

Gas Allowance

$120.00

Utilities Estimate (3)

(power, water, phone)

$500.00

Heating Oil Estimate (4)

Emergency Savings

$100.00

Totals

$27,040.00

Grand Total:

$65,900.00(5)

$1000.00

$32,964.00

$4800.00

$1096.00

3. Inflation adjustment rate:

If I retire in 40 years from today, $65,900.00 will have a reduced purchasing power of
$20,202.10. I will need a total of $214,968.29 a year forty years from now to have the
same purchasing power of $65,900.00 in todays dollars.
These calculations, shown on the next page, are based on the following web
resource:
http://www.buyupside.com/calculators/inflationjan08.htm

Using the TI-83 calculator, I get the following results:

N = 40*1
R= 3/1
PV = $65,900 (calculated from #2 above)
FV = x
PMT = 0
FV= $214,968.29
Results are the same.

!
4) This is a present value problem.
N = 30*1
R = 6/1
PMT = $214,968.29
FV = 0
PV = x
PV = $2,959,002.21
According to the TI-83 calculations, I will need $2,959,002.21 on the day I retire to be
able to withdraw $214,968.29 year at a 6% regeneration rate.

5) This is a future value problem. You can chose your own I variable rate. In this case, we
will see how $2000.00 grows over 40 years at an 8% bi-annual rate.
N = 40*2
I = 8/2
PMT = 0
FV = x
PV = $2000.00
FV = $46099.59
We must adjust for a 3% inflation over 40 years:
N = 40*1
R= 3/1
PV = $46,099.59
FV = x
PMT = 0
FV = $150,378.60
This means that to get the same buying power of $46,099.59 in current dollar value,
which would be obtained through a savings instrument working at 8% bi-annually over
forty years, you would really need to save with an overall target return of $150,378.60 at
a 3% annual interest rate environment.
The reality is that you will have $46,099.59 saved in an environment where you will
really need much more in light of inflation adjustments. I will integrate $46,099.59 in
equations that reflect inflation adjusted values, not real savings values. Savings
instruments do not self-adjust for inflation.

$2,959,002.21 (from #4) - $46,099.59 = $2,912,902.62

You will need to save $2,9112902.62 for retirement, if you factor in the savings
instrument working at 8% bi-annually over forty years, should you consider withdrawing
$214,968.29 year at a 6% regeneration rate for the next 30 years.

6) This is a PMT problem.

N = 40*1
R = 9/1
FV = $2,912,902.62 (this reflects outcomes of the savings instrument mentioned in #5)
PV = 0
PMT = x
PMT = $8621.05
I would need to save $8621.05 a year to meet the retirement goal of $2,912,902.62 in
forty years.

7) You are looking into the present value of a retirement account twenty years into its
thirty year duration regenerating at 6% interest annually.
N = 10*1
I = 6/1
FV = $2,959,002.21 (from #4)
PV = x
PMT = 0
PV= $1,652,291.38
This retirement account will be worth $1,652,291.38 twenty years into its thirty year lifespan.