Question

Tyrone, age 25, expects to retire at age 60. He expects to live until age 90. He anticipates needing $45,000 per year in today’s dollars during retirement. Tyrone can earn a 12% rate of return and he expects inflation to be 4%. How much must Tyrone save, at the beginning of each year, to meet his retirement goal?

Answer 1

the net savings rate is 8%

Now just plug that into your annuity formula with 35 years of deposits and 30 years of withdrawals.

Of course, over 30 years, the 4% inflation will markedly reduce his buying power on a fixed income. A better model would provide for an increasing annuity.