: PV homework question 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 million. If the interest rate is 8% and

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PV homework question
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 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I assume that the savings are withdrawn at the start, so at the start of yr 1, .., start of yr 15.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.

Is this correct?

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