Question

You are celebrating your 22^nd birthday today. You have decided to start investing toward your retirement beginning one month from today. For the first twenty years, you will invest $500 every month. During the next ten years, you will increase your contributions to $900 per month. For the remainder of your working life until you retire at age 67, you plan to invest $1,500 every month. If your investments earn a rate of return of 8.4 percent throughout your working life, how much will be in your retirement account on the day you retire?

How would get this answer using BA II PLUS financial calculator?

Answer 1

Value of account on 42nd birthday is calculated as below :

N = 240 (20 years with 12 monthly deposits each year)

I/Y = 0.7% (monthly interest rate = yearly rate / 12 = 8.4% / 12 = 0.7%)

PMT = -500 (monthly deposit. This is entered as a negative number because it is a cash outflow)

PV = 0 (beginning amount in account at age 22)

CPT --> FV

FV is calculated to be $309,588.91

Value of account on 52nd birthday is calculated as below :

N = 120 (10 years with 12 monthly deposits each year)

I/Y = 0.7% (monthly interest rate = yearly rate / 12 = 8.4% / 12 = 0.7%)

PMT = -900 (monthly deposit. This is entered as a negative number because it is a cash outflow)

PV = -309588.91   (beginning amount in account at age 42. This is entered as a negative number because it is like a cash outflow into the account)

CPT --> FV

FV is calculated to be $883,402.97

Value of account on 67th birthday is calculated as below :

N = 180 (15 years with 12 monthly deposits each year)

I/Y = 0.7% (monthly interest rate = yearly rate / 12 = 8.4% / 12 = 0.7%)

PMT = -1500 (monthly deposit. This is entered as a negative number because it is a cash outflow)

PV = -883402.97   (beginning amount in account at age 42. This is entered as a negative number because it is like a cash outflow into the account)

CPT --> FV

FV is calculated to be $3,638,580.13

The amount in your retirement account on the day you retire =  $3,638,580.13