Question

Assume you plan to retire in 39 years. If you invest $170.00 per month in the broad U.S. equity market and earn annual returns of 9.6% over that period, how much money will you have accumulated on the day you plan to retire?

Answer 1

Solution: Annual return = 9.6%

Interest per month = Annual Return / Total number of months

= 9.6% / 12 = 0.80%

Future Value = Monthly payment * [(1+i)ⁿ-1] / i

Monthly payment = $170

Interest (i) = 0.80% or 0.80/100 that is 0.008

Time (n) = 39 years or 39*12 months

Future Value = $170 * [(1+0.008)^39*12-1] / 0.008

= $170 * [41.641755-1] / 0.008

= $170 * 5080.219375

Future Value = $863,637.29375

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