Question

You are planning for your retirement and have decided the following: you will retire in 38 years and would like to have $7,000 per month as retirement income for 30 years of retirement. You have access to an account that earns a 9% rate of return.

1) How much will you need to have when you retire to be able to withdraw the desired $7,000 per month during your years of retirement?

2) If you plan to save by making equal monthly deposits into your account from now until when you retire, how much does that deposit need to be?

Please show all steps clearly. Thank you.

Answer 1

	1)	Retirement income per month	$7,000
		Number of months of retirement income	360	(30years*12)
		Monthly interest =(9/12)%=0.75%	0.75%
		Amount needed at the time of retirement=Present Value (PV)at retirement of future cash flows
		Amount needed at the time of retirement	$869,973	(Using PV function of excel with Rate=0.75%,Nper=360,Pmt=-7000
	2)	Future Value of Savings	$869,973
		Number of months of savings	456	(38 years*12)
		Monthly interest rate	0.75%	(Using PMT function of excel with Rate=0.75%,Nper=456,FV=-869973
		Monthly deposits required	$223.59