Question
Planning for retirement You are 30 years old and you are thinking about life after work.As a graduate, you estimate that your starting gross salary
Planning for retirement
You are 30 years old and you are thinking about life after work.As a graduate, you estimate that your starting gross salary will be about $65,000.This salary is likely to grow at 2% per year (in nominal terms, including inflation) until your retirement at the age of 65.You will be paying about 20% in taxes.
After retirement, you would like to visit your grandchildren and to travel the world.To afford this life style, you estimate that you will spend the equivalent to todays $4,000 per month. These expenditures will increase at the same rate as inflation, so you will not lose purchasing power.The inflation rate is expected to be 1.5%.
Unfortunately, the average retired worker receives $1,420 according to the Social Security Administration (SSA).You hope that the SS check will also grow at the inflation per year, but this will not be enough.
You are planning to save and to invest some money every month.You estimate that the average after-tax return on the savings will be 10%.
After retirement, you will invest all the savings in US treasuries, a safe investment but with a lower 1.8% interest rate.You plan to plan to retire at 65 (in 35 years), but you are sure that you will not be saving during the first 2 years of work (you will have loans to pay, a car to buy, perhaps also a home).
You will start working when you are 30, but you plan to start saving at the age of 32 (your initial $65,000 salary has increased for two years at the inflation rate).You will then save during the next 33 years (33 x 12 months).
Realistically, you will enjoy retirement only for about 17 years, (82 is about the average life expectancy).
Question: How much (as a percentage of your salary) to save every month to be able to afford your desired life style after retirement.
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