In: Finance
You plan to retire after 30 years. After that, you need $200,000 per year for 10 years (first withdrawal at t=31). At the end of these 10 years, you will enter a reitrement home where you will stay for the rest of your life. As soon as you enter the retirement home, you will need to make a single payment of $1,000,000. You want to start saving for your retirement in an account that pays you 9% p.a. Therefore, beginning from the end of the first year (t=1), you will make equal yearly deposits into this account for 30 years. You expect to receive $500,000 at t=30 from a cash value insurance policy that you own. This money will be deposited in your retirement account. What should your yearly deposits into the account be?
STEP 1: amount required at age 30 | |
Amount needed for 10 years withdrawal | $1,283,531.54 |
PV of payment to be made at t 41 | $422,410.81 |
Total amount required at Year 30 | $1,705,942.35 |
STEP 2: Amount required in form of deposits | |
Insurance policy amount at year 30 | 500000 |
Balance amount to be raised by deposits | $1,205,942.35 |
STEP 3: Deposit amount | |
Annual deposits required | $8,847.22 |
WORKINGS