The inflation rate is a constant 3% a year and the nominal interest rate is a constant 6% a year. How much must you have in your retirement account today if you want to make withdrawals
Of $60,000 a year, quoted in today's dollars, each year for the next 30 years? Round your answer
To the nearest $10,000.
A)$830,000
B)$1,190,000
C)$1,940,000
D)$1,750,000

Question

Quizplus · Accepted Answer

To find the present value of the withdrawals, we need to adjust the nominal interest rate for inflation to get the real interest rate, which is approximately 3% (using the approximation formula for the real interest rate: real rate ≈ nominal rate - inflation rate). Then, we use the present value of an annuity formula with the real interest rate to calculate the present value of $60,000 annual withdrawals for 30 years. The correct answer, rounded to the nearest $10,000, is approximately $1,190,000.

The Inflation Rate Is a Constant 3% a Year and the Nominal