Question

Mr. Ambitious is celebrating his 30th birthday today.

He plans to retire shortly after his 50th birthday and estimates that he can live comfortably off a pension of $50,000 per year, paid annually for 40 years starting with his 51st birthday.

He reckons that in order to achieve this, he only needs to invest $50,000 into his retirement fund every two years until he retires.

The first investment will be made on his 32nd birthday and the last on his 50th birthday.

The retirement fund offers a 10% annual rate on all investments and will continue to do so in future.

        

What is the maximum annual pension he can get from his scheme? Can Mr. Ambitious achieve his financial goal?  Explain.        

Answer 1

	Future Value(FV) of cash flow
	(Cash Flow)*((1+i)^N)
	i=interest rate per year=10%=0.01
	N=Number of years to future
	t	N=(50-t)	A	FV=A*(1.1^N)
	Birthday	Number of years to future	Investment	Future Value at 50th birtday
	32	18	$50,000	$277,996
	34	16	$50,000	$229,749
	36	14	$50,000	$189,875
	38	12	$50,000	$156,921
	40	10	$50,000	$129,687
	42	8	$50,000	$107,179
	44	6	$50,000	$88,578
	46	4	$50,000	$73,205
	48	2	$50,000	$60,500
	50	0	$50,000	$50,000
			SUM	$1,363,690
	Retirement Fund at 50th Birtday	$1,363,690