Question

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 $35,000 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 5%. He currently has $60,000 saved, and he expects to earn 8% 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.

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.

Please show answer and show how to solve on excel or attach an excel file.

Answer 1

Answer:

Number of years to retire = 10

Fixed annual retirement income at current price = $35,000

Annual Inflation rate = 5%

Duration of retirement = 25 years

Annual Earnings on savings = 8%

Current savings = $60,000

Fixed annual income at price as of day of retirement (to be drawn at start of each year) = Present value * (1 + Inflation rate) ^{Number of years}

= 35000 * (1 + 5%) ¹⁰

= $57,011.31194

Retirement corpus required on day of retirement = PV (rate, nper, pmt, fv, type)

= PV (8%, 25, -57011.31194, 0, 1)

= $657269.63

Annual savings required during each of the next 10 years (end-of-year deposits) to meet his retirement goal = PMT (rate, nper, pv, fv, type)

= PMT (8%, 10, 60000, -657269.63, 0)

= $36,429.22

Annual savings required during each of the next 10 years (end-of-year deposits) to meet his retirement goal = $36,429.22

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