Warren Reed just turned 40. He has decided that he would like to retire when he
ID: 2640528 • Letter: W
Question
Warren Reed just turned 40. He has decided that he would like to retire when he is 65. He thinks that he will need $2,000,000 in special retirement accounts at age 65 to maintain his current lifestyle. For the next 15 years he can afford to put $10,000 per year into the account. At age 55 he will need to withdraw $50,000 to purchase membership in the local country club. If his retirement account earns 10% compounded annually, how much will Warren need to deposit into it each year for the last ten years of his work career to attain the $2,000,000 goal?
Explanation / Answer
Warren Reed just turned 40. He has decided that he would like to retire when he is 65. He thinks that he will need $2,000,000 in special retirement accounts at age 65 to maintain his current lifestyle. For the next 15 years he can afford to put $10,000 per year into the account. At age 55 he will need to withdraw $50,000 to purchase membership in the local country club. If his retirement account earns 10% compounded annually, how much will Warren need to deposit into it each year for the last ten years of his work career to attain the $2,000,000 goal?
Amount Available at year 55 = fv(rate,nper,pmt,pv)
Amount Available at year 55 = fv(10%,15,10000,0)
Amount Available at year 55 = $ 317,724.82
Amount Available at year 55 after withdrawl for purchase membership = 317724.82 - 50000 = 267,724.82
Annual Deposit = pmt(rate,nper,pv,fv)
Annual Deposit = pmt(10%,10,-267724.82,2000000)
Annual Deposit = $ 81,919.81
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