Question

How much must you deposit each year into your retirement account starting now and continuing through year 15 if you want to be able to withdraw $90,000 per year forever, beginning 26 years from now? Assume the account earns interest at 10% per year.

The amount to be deposited is determined to be

Answer 1

We need to do three calculations

First, we need to find the present value at time 25 of the forever series, then need to find the present value of the future value of 25 years to 15 years end. And then need to find the equal annual value for it.

A=(A/i)*(P|F,i,n)*(A|F,i,n)

A=(90000/0.1)*(P|F,10%,10)*(A|F,10%,15)

A=900000*.3855*.0315=10928.925 (using rounded tables to 4 decimals )

A=900000*0.3855432894295*0.03147377688737=10921.0531 (using accurate tables)

The amount to be deposited is determined to be $10921