Question

Sue is preparing her financial retirement plan.  She determines that she will need $600 per month to live on in retirement.  Her goal is to retire at age 65 and to collect annuity payments for 20 years. The current interest rate is 5%. Sue plans to withdraw the $600 at the beginning of each month. How much money will Sue need to put in her annuity to accomplish her goal?

Answer 1

Sue will withdraw $600 per month starting at the beginning of each month for 20 years from her Annuity account.

To know how much sue will need in her annuity account, we will calculate the Present Value of per month withdrawal using Present Value of annuity due formula:-

Where, C= Periodic Withdrawal = $600

r = Periodic Interest rate = 5%/12 = 0.416666%

n= no of periods = 20 years*12 = 240

Present Value = $91,294

So, the money Sue will have to put in her annuity is $91,294