Question

Excel Online Structured Activity: Required annuity payments

Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 3%. He currently has $155,000 saved, and he expects to earn 7% annually on his savings. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet

How much must he save during each of the next 10 years (end-of-year deposits) to meet his retirement goal? Do not round your intermediate calculations. Round your answer to the nearest cent.

Answer 1

Please find the step wise screenshots below

This includes the first two steps where the FV of 40,000 as per current date after adjusting inflation is claculated and then the FV of father's current savings is also calculated

The above snapshot shows the calculations for the total requirement of the father to have an annual fund of 40,000 and then the amount he needs to save every month for the next 10 years i.e. PMT. As per the above caluclations father needs to save $24,716 every year for next 10 years