Question

Clarence Beeks contributes $5,500 each year to his IRA and has been doing so at the beginning of every year for the past 10 years. His IRA earns an average of 9% each year. It is Clarence’s wish to accumulate $1,250,000 so that he can retire. How many more years will it take for Clarence to accumulate $1,250,000 total assuming he continues to contribute at the same level each year and that his returns stay the same?

Answer 1

Future value required at end of retirement (F) =					$12,50,000
Annual amount (P) =					$5,500
Interest rate (r ) =				9% or	0.09
No. of years taken (n) is to be find out by Formula
Future value of annuity (F)= P * { (1+r)^n - 1 } / r
1,250,000 = 5,500 * { (1+0.09)^n - 1} / 0.09
20.45455	= (1.09)^n - 1
21.45455	=(1.09)^n
n = 35.58 years
He has been accumulating for past 10 years. So it will take 25.58 more years for Clarence to accumulate $1,250,000 .