Question

How much must you deposit each year into your retirement account starting now and continuing through year 15 if you want to be able to withdraw $80,000 per year forever, beginning 27 years from now? Assume the account earns interest at 8% per year.

The amount to be deposited is determined to be $________?

Answer 1

Solution:-

Present worth of withdrawal = ($80,000 / 0.08) * (P/F, 8%, 26)

                                           = ($80,000 / 0.08) * (0.1325)

                                       = $1,000,000 * 0.1325

                                 = $132,500

Let annual deposit be A, then as per given condition

A + A * (P/A, 8%, 15) = $132,500

A + A * (8.5595) = $132,500

A = $132,500 / 9.5595 = $13,860.5