Vanessa wants to retire in 25 years with enough saved to be able to withdraw $5,000...

Vanessa wants to retire in 25 years with enough saved to be able to withdraw $5,000 monthly for 20 years. She has already accumulated $48,000 in her investment account. Assume that the rate of interest is 4.8% compounded annually for the 25 years of her contributions, and changes to 3.6% compounded monthly for the next 20 years. Determine what annual contributions she has to make for the next 25 years in order to meet her objective.

Solutions

Expert Solution

first use PV function in EXCEL to find the amount needed to retire.

=PV(rate,nper,pmt,fv,type)

Please remember these monthly payments

rate=3.6%/12=0.3%

nper=20*12=240

pmt=5000

fv=0

=PV(0.3%,240,5000,0,0)=$854,538.03

==> Now use PMT function to find the annual contributions to accumulate 854,538.03 and have 48000 already in investment account

=PMT(rate,nper,pv,fv,type)

rate=4.8%

nper=25 years

pv=48000

fv=854538.03

=PMT(4.8%,25,-48000,854538.03,0)=$15,066.33

Annual contributions=$15,066.33

jeff jeffy answered 1 year ago

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