Question

You want to have $1 million for retirement, 30 years from today. You expect your investments to earn 8%. You plan to make consistent payment amounts at the beginning of each year for the next 20 years. Then you will stop contributing to the account. How much do you have to set aside to make the goal?

Answer 1

Solution :-

Amount Required after 35 years from today = $1 million = $1,000,000

The Value of $1,000,000 at the end of 24 Years = $1,000,000 / ( 1 + 0.09 )¹¹

= $1,000,000 * 0.4224  

= $387,532.85

Now As we see the amount deposit at the start of each year to contribute $387,532.85  

Therefore Annual Deposit be X

X * FVAF ( 9% , 24 ) = $387,532.85

( X * 84.7009 ) = $387,532.85

X * 84.7009 = $387,532.85

X = $4,575.31

Therefore Annual Deposit = $4,575.31

Amount need to save every year to make the goal = $4,575.31

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