You are 30 years old but and planning to retire at age 62. You want to plan my f

Question

            You are 30 years old but and planning to retire at age 62. You want to plan my finances for living 35 years past age 62 and die dead broke. You determine you will need $3000 per month year from age 62 on. Ignore inflation. At age 62, you plan to go live in the tropics on the beach and live on coconuts and fishing. You need to conclude your retirement savings at age 55 because all your spare money then will be going to your kids education.   The question is how much money do you need to save each month between now and 55 so that you can quit contributing.   The expected return on your investments over the whole period is 10% per year.   Show work

Explanation / Answer

At 62, you need your investment to be equal to the present value of the payments you want to receive. N=12*35, or 420; i=10/12, or .83; PMT=3,000;FV=0, calculate PV = 348,970 Now we need to bring that number back to age 55, which is seven years. 348,970/(1.1^7) = 179,077 This is what we need to have accumulated after our payments until 55. 30 to 55 is 25 years this times 12 months per year is 300 payments. n=300, i=10/12, PV=0, FV=179,077, compute payment 134.97

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