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When May retires, she wants to have enough money in an account to be able to...

When May retires, she wants to have enough money in an account to be able to take out $3500 per month for 30 years. If the account gives 4% annual interest compounded monthly, how much will May need to have in the account when she retires?

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Answer #1

Information provided:

Monthly withdrawal= $3,500

Time= 30 years*12= 360 months

Monthly interest rate= 4%/12= 0.3333%

The question is solved by calculating the present value of ordinary annuity.

Enter the below in a financial calculator to compute the present value of ordinary annuity:

PMT= 3,500

N= 360

I/Y= 0.3333

Press the CPT key and FV to compute the future value of annuity due.

The value obtained is 733,114.34.

Therefore, May needs to have $733,114.34 in her account when she retires.

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