Question

Determination #1:

Taking your current age (25) as a starting point –

1. How much money will you need to save every period (that can be annual/ monthly/weekly – whatever you prefer) into an investment account to have $1,000,000 at:

1. Age 45
2. Age 55
3. Age 65

You should presume an average rate of return of 7%, or any other amount (either averaged over the period or changing over different periods of contribution) you feel more appropriate.

Discuss the findings. Especially in comparison and what conclusions as financial realities you feel are indicated and should be applied to meet your goals.

2. Take the calculation above and while the goal of $1M remains the same – instead of the ending period changing change the STARTING one. In other words – take your same starting date as in the above and delay it by first 5, then 10 and finally 20 years. (Again the delayed periods can be any that fit your life projections).

Discuss how the contributions/savings required change. Compare and analyze how much you “saved” by not contributing for the delayed periods, to what the resulting contributions are. Feel free to project the ability to accomplish and effect on life in that may occur too. (Also, if you have a starting savings, or expect a “windfall” (inheritance), or conversely a large expense at some point, try including this in the calculation).

Determination #2:

Provide the layout, calculation and explanation of the results by component and total using the return percents provided or you decide reasonable for:

1. You were to save $300 per month for the next 5 years.
2. Then $500 per month for 5 years.
3. Then $1,000 per month until age 55.
4. And then $2,000 month until age 65.

1. How much would you have saved in total. (Beware – this is where the sum of the parts does NOT equal the whole).
2. How much less would you have if did not do step A? (Again, beware).

Note: You may want to consider this as being done as your 401K program (or IRA contributions) available during your life of work…in which case using a percent of your projected salary you contribute (commonly between 8 and 15%) and (if a 401K) a presumed employer match of the first 6% additional to yours is a reasonable approach.

Answer 1

	A	We consider annual period
		Amount to be saved to have required saving at the age of 45
	Rate	Interest Rate per period	7%
	Nper	Number of period	20	(45-25)
	FV	Future value	$1,000,000
	PMT	Required saving every period	$24,392.93	(Using PMT function of excel with Rate=7%, Nper=20,Fv=-1000000)
		Excel Command: PMT(7%,20,,-1000000)
		Amount to be saved to have required saving at the age of 55
	Rate	Interest Rate per period	7%
	Nper	Number of period	30	(55-25)
	FV	Future value	$1,000,000
	PMT	Required saving every period	$10,586.40	(Using PMT function of excel with Rate=7%, Nper=30,Fv=-1000000)
		Excel Command: PMT(7%,30,,-1000000)
		Amount to be saved to have required saving at the age of 65 (Starting at age25)
	Rate	Interest Rate per period	7%
	Nper	Number of period	40	(65-25)
	FV	Future value	$1,000,000
	PMT	Required saving every period	$5,009.14	(Using PMT function of excel with Rate=7%, Nper=40,Fv=-1000000)
		Excel Command: PMT(7%,40,,-1000000)
		Amount to be saved to have required saving at the age of 65 (Starting at age35)
	Rate	Interest Rate per period	7%
	Nper	Number of period	30	(65-35)
	FV	Future value	$1,000,000
	PMT	Required saving every period	$10,586.40	(Using PMT function of excel with Rate=7%, Nper=30,Fv=-1000000)
		Excel Command: PMT(7%,30,,-1000000)
		Amount to be saved to have required saving at the age of 65 (Starting at age45)
	Rate	Interest Rate per period	7%
	Nper	Number of period	20	(65-45)
	FV	Future value	$1,000,000
	PMT	Required saving every period	$24,392.93	(Using PMT function of excel with Rate=7%, Nper=20,Fv=-1000000)
		Excel Command: PMT(7%,20,,-1000000)
	A	Monthly Interest =(7/12)%
		Number of Months	60	(12*5)
		Monthly Savings	$300
		Future Value of savings	$21,477.87	(Using excel FV function withRate=(7/12)%, Nper=60, Pmt=-300)
		Excel command: FV((7/12)%,60,-300)
	B	Monthly savings $500
		Number of Months	60
		Amount already saved	$21,477.87
		Future Value of Savings	$66,244.02	(Using excel FV function withRate=(7/12)%, Nper=60, Pmt=-500, Pv=-21477.87)
		Excel command: FV((7/12)%,60,-500,-21477.87)
	C	Monthly $1000
		Number of months	240	(20*12)
		Already Saved	$66,244.02
		Future Value of Savings	$788,468.96	(Using excel FV function withRate=(7/12)%, Nper=240, Pmt=-1000, Pv=-66244.02)
		Excel Command: FV((7/12)%,240,-1000,-66244.02)
	D	Monthly $2000
		Number of months	120	(10*12)
		Already saved	$788,468.96
		Future Value of Savings	$1,930,725.23	(Using excel FV function withRate=(7/12)%, Nper=120, Pmt=-2000, Pv=-788468.96)
		Excel command:FV((7/12)%,120,-2000,-788468.96)
		Total amount Saved	$1,930,725.23