It is 2024, youve just graduated college, and you are contemplating your lifetime budget. You think your general living expenses will average around $40,000 a year. For the next 8 years, you will rent an apartment for $24,000 a year. After that, you will want to buy a house that should cost around $300,000. In addition, you will need to buy a new car roughly once every 10 years, costing around $35,000 each. In 25 years, you will have to put aside around $200,000 to put a child through college, and in 30 years youll need to do the same for another child. In 50 years, you will retire, and will need to have accumulated enough savings to support roughly 20years of retirement spending of around $40,000 a year on top of your social security benefits (partly to cover ever increasing medical and drug costs). The interest rate is 5% per year.

a. How much to you need to earn to support this lifetime consumption plan?

b. Whoops! You just realized the inflation rate over your lifetime is likely to average around 3% per year, and you need to redo your calculations. As a rough cut, it seems reasonable to assume that all relevant prices and wages will increase at the round of inflation. What is your new estimate of the required salary (in todays dollars)?