Question

Complete your own budget using the attached the Family Monthly Budget sheet below. Use Time Value of Money techniques to calculate the following:

1. How much money do you need to accumulate to retire at age 40 (with a life expectancy of 90)?
2. How much money do you need to accumulate to retire at age 65 (with a life expectancy of 90)?
3. If you had $2,000,000 and retired at age 65, how much would you be able to receive monthly with a 25-year payout?
4. If you had $2,000,000 and retired at age 40, how much would you be able to receive monthly with a 50-year payout?

Describe the PV, i, N, FV, and Pmt in each scenario.

Answer 1

Say, i=10% (EAR) and I need $10000 every year after retirement up to 90 years if I retire at 40 year

PMT=10000,N (nper)=50,i=10%,FV=0

So, I need to accumulate $99148.14 at the time of retirement.

If I retire at 65, then N(nper)=90-65=25,i=10%,pmt=10000,FV=0

So, I need $90770.40 to retire at the age of 65

  For the same scenario, if I had $200000 at the retirement age of 65, then PV=200000,i=10%,nper=25,FV=0

So, I will receive 22033.61 every year as a payout

If I retire at 40 then, i=10%, PV=200000, N(nper)=50, FV=0

So, I will receive $20171.83 every year after retirement at 40 year for the next 50 year.