Meg's pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly)....

Meg's pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly). She would like to retire with a pension of $30,000 per quarter for 25 years. If she works 41 years before retiring, how much money must she and her employer deposit each quarter? (Round your answer to the nearest cent.)

Expert Solution

The amount required at the beginning of retirement is calculated using PV function in Excel :

rate = 4% / 4 (converting annual rate into quarterly rate - there are 4 quarters in a year)

nper = 25 *4 (25 years of pension with 4 deposits each year)

pmt = -30000 (quarterly pension. This is entered with a negative sign because it is a cash withdrawal)

PV is calculated to be $1,890,866.36

The quarterly deposit is calculated using PMT function in Excel :

rate = 4% / 4 (converting annual rate into quarterly rate - there are 4 quarters in a year)

nper = 41 *4 (41 years of deposits with 4 deposits each year)

pv = 0 (beginning amount in savings is zero)

fv = 1890866.36 (amount required at the beginning of retirement)

PMT is calculated to be $4,596.90

The quarterly deposit is $4,596.90

jeff jeffy answered 1 month ago

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