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You plan to retire in 34 years and would like to have saved $1,000,000 in your...

You plan to retire in 34 years and would like to have saved $1,000,000 in your tax-deferred retirement account.

Currently, your balance in your account is zero. As a first pass analysis, assume that you make an annual contribution at the end of each year, starting with the current year. Also, assume that the dollar amount of each contribution is the same. Your investment options are such that you forecast a rate of return of 8% per year over the period of time until you retire.

What is your required annual contribution (before taxes), based on these forecasts?

Round your answer to the nearest dollar.

Solutions

Expert Solution

Solution :

Following points need to be kept in mind while calculating :-

1. Nper is the total number of payment periods in an annuity.

2. Pmt is the payment made each period and cannot change over the life of the annuity.

3. Pv is the present value that the future payment is worth now. Pv must be entered as a negative amount.

4. Fv is the future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0

5. Type is the number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0 which represents at the end of the period. If payments are due at the beginning of the period, type should be 1.

Keeping the above points in mind refer below attached image in excel for calculation.

Given below is the year wise schedule with figures rounded off.

jeff jeffy answered 2 years ago
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