To determine what you will need to earn at age 65 to maintain your standard of living, given that inflation stays at 6% per year, we can use the concept of compound interest. Here is a detailed, step-by-step solution:
### Step-by-Step Solution:
1. Identify the Information Provided:
- Current Age: 30 years old (assuming as it is not explicitly given)
- Current Salary: \($50,000 (assuming as it is not explicitly given)
- Inflation Rate: 6% per year
- Target Age: 65 years old
2. Calculate the Number of Years Until Retirement:
\[
\text{Years until 65} = \text{Target Age} - \text{Current Age} = 65 - 30 = 35 \text{ years}
\]
3. Understand the Compound Interest Formula:
To find the future salary needed, we use the formula for compound interest:
\[
\text{Future Value} = \text{Present Value} \times (1 + \text{Rate})^\text{Number of Periods}
\]
In this context:
- Present Value (PV): Current Salary = $\)50,000
- Rate: Inflation rate = 0.06 (6%)
- Number of Periods (n): Years until retirement = 35
4. Calculate the Future Salary:
Substitute the values into the formula:
\(\[
\text{Future Salary} = 50000 \times (1 + 0.06)^{35}
\]\)
To simplify the calculations:
\(\[
1 + \text{Rate} = 1 + 0.06 = 1.06
\]\)
Therefore:
\(\[
\text{Future Salary} = 50000 \times (1.06)^{35}
\]\)
5. Calculate \(\( (1.06)^{35} \)\):
Using a calculator:
\(\[
(1.06)^{35} \approx 7.6861
\]\)
6. Calculate the Future Salary:
\(\[
\text{Future Salary} = 50000 \times 7.6861 = 384305
\]\)
### Conclusion:
To maintain your current standard of living, you will need to earn approximately $384,305 per year at age 65, assuming inflation remains constant at 6% per year.
