Answer:
Explanation:
Since she wants to receive the income per month, change the interest rate and duration on investment variables to monthly basis;
Out of the $12,000, find Jenny's own savings after deducting social security income & Pension benefit;
= 12,000 - 3,000 - 4,000 = $5,000
Since the 5,000 is recurring, it will be the PMT in annuity calculation.
<em>If marginal tax rate = 28%, find the aftertax nominal rate;</em>
<em>Pretax nominal rate = 7.9% or 0.079</em>
<em>After tax nominal rate = (1-0.28) *0.079</em>
<em>After tax nominal rate = 0.05688 or 5.688%</em>
Next, find the real interest rate using Fisher equation that applies the nominal rate and inflation rate
Real rate = [(1+Nominal) / (1+inflation) ] -1
=[(1+0.05688) / (1+0.026)] -1
= 1.0301 -1
= 0.0301
Real rate = 3.01%
Next, using financial calculator, enter the following inputs;
N = 95 - 70 = 25 years, but convert to months = 25*12 = 300
I/Y = 3.01% /12 = 0.2508%
PMT = 5,000
FV = 75,000*6 = 450,000
then CPT PV = $1,265,460.78
Therefore, she need to have saved $1,265,460.78
