Suppose that inflation is 1.85% per year. What would be the real value of Amy's retirement savings account balance when she retires (year 40)?

To determine the real value of Amy's retirement savings at the time of her retirement, we need to adjust for inflation. This involves calculating the present value of her future savings goal in today's dollars, considering an inflation rate of 1.85% per year.

### Step-by-Step Calculation

1. **Define the real value formula:**

The formula to find the real value of Amy's retirement savings, accounting for inflation, is:

\[
\text{Real Value} = \frac{\text{Future Value}}{(1 + \text{inflation rate})^n}
\]

where:
- **Future Value (FV)** = $2,000,000
- **Inflation rate** = 1.85% = 0.0185
- **n** = 40 years

Let's compute the real value of Amy's retirement savings.The real value of Amy's retirement savings account, adjusted for an inflation rate of 1.85% per year, will be approximately **$960,701.93** in today's dollars when she retires at age 65.

Would you like more details on this calculation or have any other questions?

### Related Questions to Explore:
1. How would a different inflation rate affect the real value of her savings?
2. What is the nominal value of her annual contributions over 40 years, considering the increase rate?
3. How much would Amy need to save each year to maintain the same real value of $2 million?
4. What impact does compounding frequency have on her retirement savings?
5. How can Amy adjust her retirement plan if inflation rises unexpectedly?

**Tip:** Understanding the real value of money helps ensure that your savings have the purchasing power needed for future expenses.

Explore how to calculate the real value of Amy's retirement savings account balance when she retires after 40 years, adjusting for a 1.85% annual inflation rate. Learn the step-by-step method and formula used in finance to adjust future values for inflation.

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