Michael is 30 years old. He comes up with a plan to save for his retirement...

Michael is 30 years old. He comes up with a plan to save for his retirement at 65 years. Currently, he has saved $40,000 in a balanced superannuation account earning 5.5% annually. He has set himself a retirement target of $2,000,000. How much must be deposited in his superannuation account starting next year each year to reach his target? Assume his contributions are to be invested at 5.5% annually. Please, round your answer to two decimal places.

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Expert Solution

FV of Current Savings at Retirement = Present Value*[(1+Interest Rate)^Number of Periods] = 40000*[(1+0.055)^35] = 40000*6.513825 = $260553

Balance Target that needs to be collected by year;y deposits = 2000000-260553 = $1739447

FV of Annuity = P*[{(1+i)^n}-1]/i

Where, FV = 1739447, i = Interest Rate = 0.055, n = Number of Periods = 35

Therefore,

1739447 = P*[{(1+0.055)^35}-1]/0.055

95669.585= P*5.513825

Therefore, Amount to be deposited each year = P = 95669.585/5.513825= $17350.86

jeff jeffy answered 2 years ago

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