You wish to retire in 20 years, at which time you want to have accumulated enoug

Question

You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $32,000 for 25 years after retirement. During the period before retirement you can earn 8 percent annually, while after retirement you can earn 10 percent on your money.

What annual contributions to the retirement fund will allow you to receive the $32,000 annuity? Use Appendix C and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $32,000 for 25 years after retirement. During the period before retirement you can earn 8 percent annually, while after retirement you can earn 10 percent on your money.

Explanation / Answer

Fund value if we invest $32000 annually for 25 years Present value of annuity factor for 25 years at 10% =FV(10%,25,-32000,0) $3,147,105.90 Present value of $3147105.90 after 20 years . Present value interest Factor at 10% for 25 years =1/(1+10%)^25 0.092295998 Multiplying it with by $3147105.90 =0.092296*3147105.90 290465.2861 Present value of $290465.2861 today at 8% for 20 years Present value factor @8% for 20 years =1/(1+8%)^20 0.214548207 Multiplying it with by 290465.2861 =290465.2861*0.214548 62318.7462 Yearly Contribution =pmt(8%,20,-62318.75,0) $6,347.30 We should make yearly contribution of $ 6347.30 to receive $32000 for 25 years

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