Use Worksheet 14.1 to help Andy and Rachel Cutler, who’d like to retire while they’re still relatively young – in about 20 years. Both have promising careers, and both make good money. As a result, they’re willing to put aside whatever is necessary to achieve a comfortable lifestyle in retirement. Their current level of household expenditures (excluding savings) is around $85,000 a year, and they expect to spend even more in retirement; they think they’ll need about 125% of that amount. (Note: 125% equals a multiplier factor of 1.25). They estimate that their Social Security benefits will amount to $21,000 a year in today’s dollars and they’ll receive another $31,000 annually from their company pension plans. They feel that future inflation will amount to about 3% a year, and they think they’ll be able to earn about 6% on their investments before retirement and about 4% afterward. See Appendix A and Appendix B.
Use Worksheet 14.1 to find out how big Andy and Rachel’s investment nest egg will have to be. Round your answer to the nearest dollar.
How much they’ll have to save annually to accumulate the needed amount within the next 20 years. Round your answer to the nearest dollar