In this question, the individual earns 7.4% on her portfolio. With 3% inflation, that is a 4.4% real return. Her living expenses that she needs to earn from the portfolio are $50k on a $1.12 million portfolio, or 4.5%
The answer says that because the 4.4% real return is less than the 4.5% return, she is SOL, and won’t earn enough.
But, it seems to me that she is earning 7.4% on 1.12 million, which is approximately $83k, which is more than enough to cover the $50k.
Is this problem just saying that even though she she has enough to cover living expenses, living expenses will grow at a rates of 3%, but the portfolio will only grow at a rate of 2.9%, so eventually, the portfolio principal will decline to zero?