Question

In: Finance

6. You saved $15,000 each year starting at t=1 and going on until t=35. If your...

6. You saved $15,000 each year starting at t=1 and going on until t=35. If your savings earn 9% per year over your working and retired life, how much would you have when you retire at t=35? If you withdraw $100,000 every year starting at t=36, how long will your savings last?

Expert Solution

The question is solved by first calculating the future value of the savings at the end of the 35th year.

Information provided:

Annual saving= $15,000

Time= 35 years

Interest rate= 9%

The question is solved by calculating the future value of ordinary annuity.

Enter the below in a financial calculator to compute the future value of ordinary annuity:

PMT= -15,000

N= 35

I/Y= 9

Press the CPT key and FV to compute the future value of ordinary annuity.

The value obtained is 3,235,661.32.

Therefore, I would save $3,235,661.32 at the end of the 35th year.

Next, the time till when the savings will last is computed.

Information provided:

Present value= 3,235,661.32

Annual withdrawal= 100,000

Interest rate= 9

The time till when the savings will last is calculated by entering the below in a financial calculator:

PV= -3,235,661.32

PMT= 100,000

I/Y= 9

Press the CPT key and N to compute the time till when the savings will last.

The value obtained is 15.83.

Therefore, the savings will last for 15.83 years.

In case of any query, kindly comment on the solution.

jeff jeffy answered 2 years ago

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