Assume you earn 50K per month, of which, you spend 30K towards the cost of living, and therefore left with 20K in surplus every month. You choose not to invest this monthly surplus and leave that cash as is.
Now, the question is, at this rate, how much money will you have by the time you retire?
For the sake of simplicity, let us ignore the effect of tax and make few simple assumptions -
• Your employer is kind enough to give you a 10% salary hike every year
The cost of living increases by 8% year on year
• You are 30 years old (now) and plan to retire at the age of 50, this implies you have 20 working years left
• You don't intend to work post retirement
• Your expenses are fixed and don't foresee any other expense
Answers
Answer:
Calculation of money at time of retirement
Explanation:
The first step is to calculate how much your expenses will be in retirement. Draw up a list of your total expenses. Most regular expenses such as grocery and utility bills, clothing, gifting and house maintenance will continue even after retirement.
However, several other expenses, such as travelling to work, professional clothing, home loan and children’s education expenses are likely to stop by the time you retire. So, consider only the regular items when computing your monthly expenses in retirement.
Answer:
The answer is 1,716,000
Explanation:
He i apply the principle of compound interest.
A = P (1 + r/n) (nt)
where;
A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per unit t
t = the time the money is invested or borrowed for
A is our desired amount
P is 240,000 the total savings in a year
r is 0.1 the rate of salary hike per year
n is 20 the number of times that interest is compounded per unit t
t is 20 the time the money is invested or borrowed for
A = P - 48000(Total cost of living increase for 20 years)
A= 1,764,000 - 48,000
A= 1,716,000