You believe you will need to have saved $450,000 by the time you retire in 40 ye

Question

You believe you will need to have saved $450,000 by the time you retire in 40 years in order to live comfortably. You also believe that you will inherit $108,000 in 10 years. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.) If the interest rate is 5% per year, what is the future value of your inheritance at retirement? Future value $ How much must you save each year to meet your retirement goal? (Assume you save your entire inheritance. This is the amount needed in addition to the inheritance.) Annual savings required $

Explanation / Answer

inheritance at 10 years = $108000

Remaining time for retirement = 30 years

Rate = 5%

Compute the future value using excel function:

FV=FV(Rate,Nper,Pmt,PV) = FV(5%,30,0,-108000) = $466,769.78.

Therefore, the future value of the inheritance is $466,769.78.

b.

Nper = 40 years

Future value = $450,000

As the Future value of Inheritance is more than the amount required at the retirement and thus no additional savings are required.

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