Who wants to be a millionaire? How much would you have
to put away at the end of each year to have $1,000,000 assuming you
retire in 40 years and can earn 5% on your money.
| We can use the future value of annuity formula to calculate the amount to put away | |||||||||
| at the end of each year to have $1 million at the time of retirement. | |||||||||
| Future value of annuity = P x {[(1+r)^n -1]/r} | |||||||||
| Future value of annuity = $10,00,000 | |||||||||
| P = amount of put away at the end of each year = ? | |||||||||
| r = rate of earning = 5% | |||||||||
| n = number of years to retire = 40 | |||||||||
| 1000000 = P x {[(1+0.05)^40 -1]/0.05} | |||||||||
| 1000000 = P x 120.7998 | |||||||||
| P = 8278.16 | |||||||||
| The amount to put away at the end of each year to have $1 million at the time of retirement = $8278.16 | |||||||||
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