Question

Assuming an 8% annual return, compounded monthly, a 30 year old would need to save _______ a month to raise $1,000,000 by age 70.

Answer 1

The amount is computed as shown below:

Amount to be raised = Amount to be saved each month [ (1 - 1 / ( 1 + r)ⁿ ] / r]

r is computed as follows:

= 0.08 / 12

= 0.006666667

n is computed as follows:

= (70 - 30) x 12

= 40 years x 12 months

= 480

So, the amount to be saved each month will be as follows:

$ 1,000,000 = Amount to be saved each month x [ [ (1 - 1 / ( 1 + 0.006666667)⁴⁸⁰ ] / 0.006666667 ]

$ 1,000,000 = Amount to be saved each month x 143.8203204

Amount to be saved each month = $ 6,953.12 Approximately

Feel free to ask in case of any query relating to this question