Question

You want to be able to withdraw $30,000 from your account each year for 25 years after you retire. If you expect to retire in 20 years and your account earns 6.1% interest while saving for retirement and 5% interest while retired:
Round your answers to the nearest cent as needed.

a) How much will you need to have when you retire?  
$  

b) How much will you need to deposit each month until retirement to achieve your retirement goals?
$  

c) How much did you deposit into you retirement account?
$  

d) How much did you receive in payments during retirement?
$  

e) How much of the money you received was interest?
$

Answer 1

Answer;

Part a) $422818.34

Part b) $904.32

Part c) $217,036.8

part d) $750,000

Part e)$532,963.2

Explanation

Part a)

Answer ) $422,818.34

Part b)

Answer ) Monthly Deposit = $904.32

Part c )

Total Deposit Amount = PMT x No of Payment

PMT = $904.32

No of payments = 20 years x 12 month = 240

Total Deposit amount = $904.32 x 240 = $217,036.8

Part d)

Total Payments = Annuity x No of payments

Annuity = $30,000

No of paymnets = 25 years

Total Payments = $30000 x 25 = $750,000

Part e)

Total Interest= Interest on Deposit + Interest on Annuity

Interest on Deposits = Present value at retirement - Total Deposit Amount

= $422,818.34 - $217,036.8 = $205,781.54

Total Interest on annuity payments = Total Payments - Pv at retirement

= $750,000 - $422,818.34

= $327,181.66

Total Interest = $205,781.54 + $327,181.66 = $532,963.2

Alternatively

Total Interest = Total Annuity payments - Total Deposits i.e. = $750,000 - $217036.8 = $532,963.2