A couple will retire in 50 years; they plan to spend about $30,000 a year in retirement, which should last about 25 years. They believe that they can earn 8% nominal interest on retirement savings.
1. Assume there is no inflation. How much do they need to save by the time they retire, so they can enjoy $30,000 a year for the next 25 years? Now the couple realizes that the annual inflation rate is 4%.
2. If one pound of apples costs $1 today, how much will they cost by the time they retire?
3. The couple really wants to consume $30,000 a year in real dollars during retirement. What is the real amount of saving they need to accumulate by the time they retire?
4. How much will they have to save each year for the next 50 years, in real dollars, to reach the goal in part 3?