Question

You are 25 years old and plan to retire 35 year from today. You expect that you will live 30 years after retiring. You want to have enough money upon reaching retirement age to withdraw $150,000 from the account at the beginning of each year you expect to live, and yet still have $1,000,000 left in the account at the time of your expected death (65 years from now). You plan to accumulate the retirement fund by making equal annual deposits at the end of each year for the next 35 years. You expect that you will be able to earn 12% per year on your deposits. However, you only expect to earn 6% per year on your investment after you retire since you will choose to place the money in less risky investments. What equal annual deposits must you make each year to reach your retirement goal?

Answer 1

Annual savings = $5473.52

First we determine the amount needed on retirement
N	30 years
Annual withdrawal	150000
Amount required at end	1000000
Rate	6%
Amount needed on retirement at age 60	($2,362,718.28)
Now determine annual savings
N	35 years
Rate	12.00%
Future value of amount needed at age 60	$2,362,718.28
Savings required each year	($5,473.52)

WORKINGS