You plan to retire 33 years from now. You expect that you will live 27 years aft

Question

You plan to retire 33 years from now. You expect that you will live 27 years after retiring. You want to have enough money upon reaching retirement age to withdraw RM180,000 from the account at the beginning of each year you expect to live, and yet still have RM2,500,000 left in the account at the time of your expected death (60 years from now). You plan to accumulate the retirement fund by making equal annual deposits at the end of each year for the next 33 years. You expect that you will be able to earn 12% per year on your deposits. However, you only expect to earn 6% per year on your investment after you retire since you will choose to place the money in less risky investments. What equal annual deposits must you make each year to reach your retirement goal?

Explanation / Answer

Answer: Calculation of PV

PMT=$180000

Fv=$2500000

N=27 years

i=6%

Pv=180000*PVIFA(6%,27)

=$3038989.79

Now,

N=33 years

PV=0

FV=$$3038989.79

i=12%

PMT=$8874.79

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