Question

You want to save sufficient funds to generate an annual cash flow of $55,000 a year for 25 years as retirement income. You currently have no retirement savings but plan to save an equal amount each year for the next 38 years until your retirement. How much do you need to save each year if you can earn 7.5 percent on your savings?

Answer 1

First, calculate the value which will support 25 withdrawals:

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate or yield / frequency of coupon in a year =	7.500000
PMT =	-$55,000.00
N = Number of years remaining x frequency =	25.00
FV = Future Value =	$0.00
CPT > PV = Value that will support 25 withdrawals for 25 years =	$613,082.02

Now, we can calculate the total payment or savings (38 payments) required to achieve value of $613,082.02::

Using financial calculator BA II Plus - Input details:	#
FV = Value that will support 25 withdrawals for 25 years =	-$613,082.02
PV = Present Value =	$0.00
I/Y = Rate / Frequency =	7.50
N = Number of payments =	38
CPT > PMT = Payment = Savings to done for 38 years =	$3,146.32