Question

How much must you deposit each year into your retirement account starting now and continuing through year 12 if you want to be able to withdraw $95,000 per year forever, beginning 27 years from now? Assume the account earns interest at 10% per year.

Answer 1

ANSWER:

Withdraw able amount after 27 years = $95,000

i = 10%

first we will find the perpetual streams inflow of $95,000 at 10% and then find the present value at the end of 12th year and then the annual deposit of that amount for 13 years (from year 0 to year 12)

Amount = Withdraw able amount after 27 years / i (p/f,i,14) (a/f,i,13)

Amount = 95,000 / 10% (p/f,10%,14) (a/f,10%,13)

Amount = 950,000 * 0.2633 * 0.0408

Amount = 10,205.51

So, the deposit per year from year 0 to year 12 is $10,205.51