An individual is now 50 years old, that he plans to retire in 10 years, and that

Question

An individual is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He wants a fixed annual retirement income of $65,156. His retirement income will begin the day he retires, 10 years from today, and he will then get 24 additional annual payments. He currently has $100,000 saved up; and he expects to earn a return on his savings of 8 percent per year, annual compounding. To the nearest dollar, how much must he save during each of the next 10 years (with deposits being made at the end of each year) to meet his retirement goal?

Explanation / Answer

amount is to be withdrawn annually, at the beginning ofthe year, for 25 years. So, when he turns 65 he will need to have the following balance in his account.Switch to BEGIN mode….ie present value of Cash flow At age 65

N = 25

I/Y = 8

PMT = -65,156

FV = 0

CPT PV = 751,165.30

Given an initial deposit of $100,000, how much will he haveto save each year to have saved 751,165.30 in 10 years?

Switch to END mode…

N = 10

I/Y = 8

PV = -100,000

FV = 751,165.30

CPT PMT = -36,949.61

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