You plan to retire at age 40 after a highly successful but short career. You wou

Question

You plan to retire at age 40 after a highly successful but short career. You would like to accumulate enough money by age 40 to withdraw $245,000 per year for 40 years. You plan to pay into your account 15 equal installments beginning when you are 25 and ending when you are 39. Your account bears interest of 10 percent per year Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. How much do you need to accumulate in your account by the time you retire? (Round your final answer to the nearest dollar amount.) 2. How much do you need to pay into your account in each of the 15 equal installments? (Round your final answer to 2 decimal places.) 1. Amount to be accumulated in your account 2. Annual installment

Explanation / Answer

1) The amount to be accumulated by the beginning of the 40th year = 245000*PVIF of Annuity due (10,40) = 245000*10.75696 = $          26,35,455 2) The above amount is the FV of the 15 annual instalments. Hence, the annual instalment = 2635455.20/FVIF of Annuity due(10,15) = 2635455.20/34.94973 = $          75,407.03

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