Question

You expect to retire in 20 years. After you retire, you want to be able to withdraw $3,000 from your account each month for 15 years. If your account earns 8% interest compounded monthly, how much will you need to deposit each month until retirement to achieve your retirement goals? (Round to the nearest cent.)

Answer 1

Calculation of amount at the time of retirement:

Rate = 8% / 12

Nper = 15 * 12 = 180

PMT = -3000

FV = 0

Amount at the time of retirement can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(8%/12,180,-3000,0)
= $313,921.78

Calculation of monthly deposit until retirement:

Nper = 20 * 12 = 240

Rate = 8% / 12

PV = 0

FV = 313921.78

Monthly deposit can be calculated by using the following excel formula:
=PMT(rate,nper,pv,fv)
=PMT(8%/12,240,0,-313921.78)
= $532.96

Monthly deposit = $532.96