To maintain purchasing power for their goal of $350,000 in 12 years, what annual increase rate should Cathy and John consider in their investment payments?

To determine the annual increase rate that Cathy and John should consider in their investment payments to maintain their purchasing power for a target of $350,000 in 12 years, it's essential to account for factors like inflation and the compounding effect of their investments.

Assuming a consistent rate of return on their investments, the future value of their investment strategy needs to align with their goal while also counteracting the diminishing value of money over time due to inflation. An annual increase rate of 6% would likely take into account expected inflation rates and enable their investment to grow sufficiently over the 12-year period to meet or exceed that goal.

When investments grow at a rate of 6% per year, they allow for a suitable balance between earning growth on their initial capital and ensuring that the purchasing power of their future dollar amount adjusts for potential inflation. This means that after 12 years, they could reasonably expect their investments to yield the necessary amount needed to fulfill their $350,000 target without losing value in real terms.

In contrast, a lower rate such as 5% might not adequately prepare Cathy and John for the potential erosion of purchasing power. Thus, by selecting an annual increase of 6%, they've chosen an approach that is more aligned with ensuring