Question

Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 70.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 70.0 when he fully retires, he will wants to have $2,536,520.00 in his retirement account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 9.00% interest rate.

Answer 1

Contribution per year can be calculated in the Excel Sheet as given below

Future Value of Annuity is Present value of the Amount which is desired in future

As Derek makes contribution till the age of 65 years but he desires the amount of $ 2,536,520 one year after his 70th birthday, which is his 71st Birthday. So, the amount of $ 2,536,520 is discounted back till 65th year because after 65th year he will not make any contribution nor any withdrawal, but this amount earns only interest of 9% till 71st year.

So, the Amount of Annual contribution to be made by Derek comes out to be $ 4,476.

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