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Finance 1380 Signature Assignment B

1. The document calculates the author's projected monthly retirement expenses in 2066 to be $9,760.19, factoring in a 3% annual inflation rate but excluding student loan costs. 2. It explains that to sustain the author's current lifestyle in retirement, their income will need to rise with inflation as the purchasing power of money decreases over time. 3. Various retirement expenses may fluctuate depending on individual circumstances, so a tailored budget is needed to address evolving needs and priorities like healthcare, leisure activities, or housing costs. Regularly reassessing the retirement plan is vital to adjusting to lifestyle changes.

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236 views3 pages

Finance 1380 Signature Assignment B

1. The document calculates the author's projected monthly retirement expenses in 2066 to be $9,760.19, factoring in a 3% annual inflation rate but excluding student loan costs. 2. It explains that to sustain the author's current lifestyle in retirement, their income will need to rise with inflation as the purchasing power of money decreases over time. 3. Various retirement expenses may fluctuate depending on individual circumstances, so a tailored budget is needed to address evolving needs and priorities like healthcare, leisure activities, or housing costs. Regularly reassessing the retirement plan is vital to adjusting to lifestyle changes.

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Signature Assignment Sections B1-B4: Applying Compound Interest and Annuity

Name: Alicia Tena Rosales


Date: February 29, 2024
B1:
1. The estimated retirement date is in 2066, which is 44 years from now. Currently, my
monthly spending is approximately $5307,40. Redrawing my budget with an adjustment
for inflation at a rate of 3% compounded annually, the projected monthly expenditure by
then would be $19,489.42. This calculation is based on the formula:
$5,308.40*(1+0.03)^44.
- Currently monthly spending: $5307,40
- Number of years until retirement: 44
- Inflation rate: 3% compounded annually
- Adjusted monthly spending for retirement: $5,308.40*(1+0.03)^44=$19,489.42
However, considering the elimination of my student loan, which accounts for part of my current
expenses, the revised monthly spending without this cost would be approximately $2658.40.
Adjusting this amount for inflation at the same rate would yield a projected monthly expenditure
of $9,760.19 by the retirement year. This calculation follows the formula:
$2,658.40*(1+0.03)^44.
- Currently monthly spending: $2658.40.
- Number of years until retirement: 44
- Inflation rate: 3% compounded annually
- Adjusted monthly spending for retirement: $2,658.40*(1+0.03)^44=$9,760.19
Therefore, my estimated monthly expenses for retirement in 2066, factoring in inflation and
excluding the student load, would be $9,760.19.
2. The impact of inflation on my paycheck hasn’t been aligned. Allow me to clarify: when
inflation is high, the purchasing power of money diminishes, necessitating more money
to buy the same goods and services. Consequently, to sustain my current lifestyle (no
mortgage, just renting), my income would need to rise in tandem with inflation. This
discrepancy in income growth would also impact my projected expenses. With the
anticipation of rising inflation, the future cost of goods and services is expected to exceed
present levels, demanding a budget adjustment to accommodate higher expenses down
the line.
3. Upon retirement, certain expenditure categories may fluctuate based on individual
circumstances. For instance, expenses linked to commuting or work-related activities
may decrease, while those associated with healthcare or leisure activities may rise.
Therefore, it’s crucial to evaluate one’s circumstances and devise a retirement budget
tailored to address our distinct needs and priorities.
In my case, if I were to purchase a house, I would incur additional expenses such as
mortgage payments, electricity, gas, water, insurance, etc. These are costs that would
personally increase for me.
4. Projected expenditures play a crucial role in retirement planning, influencing the amount
of money required to achieve retirement goals. By carefully assessing projected expenses,
individuals can develop a more accurate retirement budget and make informed decisions
regarding savings and investment strategies.
To streamline spending and ensure financial preparedness, I would review my current
expenditure habits. This includes assessing expenses such as commuting costs and
considering adjustments in spending patterns. For instance, while commuting expenses
may decrease in retirement, there might be an increase in healthcare or leisure-related
expenditures.
It's vital to continually reassess and adjust the retirement plan to accommodate lifestyle
changes effectively. This ongoing evaluation ensures that the retirement strategy remains
aligned with evolving needs and priorities.
B2:
1. The annualized projected retirement budget is calculated by multiplying each monthly
income and expense category by 12.
For example: $2,658.40*(1+0.03)^44*12=$117,122,26
B3:
1. Calculating projected income requirements and expenses for each year of retirement can
be challenging due to the impact of inflation. Overcoming inflation at 3% during working
years can be difficult, as it requires consistent and significant growth in income or
investment returns in order to keep up with price increases. The impact of inflation can be
particularly challenging for retirees, as they may be living on a fixed income and may not
have the same opportunities for income growth or investment returns.
For example: $117,122,268*(1+0.03)=$120,635.93
2. To mitigate the impact of inflation during retirement, it's crucial to carefully assess my
income and investment strategies. This might involve diversifying investments, allocating
funds to assets expected to appreciate over time, and crafting a retirement budget that
anticipates potential inflationary pressures. Additionally, I could explore options like
negotiate a raise or other income-generating activities to supplement retirement income
and counteract the effects of inflation. It will be frustrating venturing out for different
resources of income to maintain with inflation but will be necessary for the cost of goods.

Another significant aspect is the direct effect of inflation on eroding purchasing power. If
my income fails to keep pace with inflation, the same amount of money will purchase
less over time. Therefore, securing a substantial raise becomes imperative to effectively
combat inflation's effects and maintain purchasing power. In conclusion, while inflation
poses challenges, it is a normal part of most healthy economies.

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