Question

You plan to retire in year 21 Your retirement will last 25 years starting in year 21 You want to have $50,000 each year of your retirement. How much would you have to invest each year, starting in one year, for 15 years , to exactly pay for your retirement ,if your investments earn 6.00% APR (compounded annually)?

Calculate your answer to the nearest dollar. Write only the number with no dollar sign or comma (e.g., 3711)

Answer 1

The question is solved by first calculating the amount in the retirement in year 21.

Information provided:

Yearly withdrawal= $50,000

Time= 25 years

Interest rate= 6% per year

Enter the below in a financial calculator to compute the future value:

PMT= 50,000

N= 25

I/Y= 6

Press the CPT key and FV to compute the amount of funds in the retirement account.

The value obtained is 2,743,225.60

Therefore, the amount in the retirement in year 21 to make the yearly withdrawal is $2,743,225.60

Next, the amount of yearly investment is computed by entering the below in a financial calculator:

PV= -2,743,225.60

N= 15

I/Y= 6

Press the CPT key and PMT to compute the amount of yearly investment.

The value obtained is 282,450.0899.

Therefore, the amount of yearly investment is 282,450.09.