Question

In: Finance

Ella Funt would like to set up her retirement account that willbegin in 35 years....

Ella Funt would like to set up her retirement account that will begin in 35 years. To play it safe, she wants to assume that she will live forever and she will withdraw $150,000 annually. Assuming her account will earn 9% interest during the next 35 years and 4% interest afterwards forever, how much will Ella need to save annually over the next 35 years to fund her retirement account?

Group of answer choices

$16,212

$17,384

$18,798

$19,454

Expert Solution

Ella assumes that she can live forever after retirement and will withdraw $150,000 annually during this period.

She can earn interest at 4%

calculating the Present Value on retirement of after retirement withdrawal:-

Present Value = Annual Withdrawal/Interest rate

Present Value = $150,000/4%

Present Value = $3750,000

So, amount needed at retirement is $3750,000

Elle needs to save annually for 35 years to accumulate for the above retirement amount.

Calculating the annual savings in retirement account:-

Where, C= Periodic annual savings

r = Periodic Interest rate = 9%

n= no of periods = 35

Future Value = $3750,000

C = $17384.39

So, the amount Ella need to save annually over the next 35 years to fund her retirement account is $17,384

Option 2

jeff jeffy answered 2 years ago

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