Question

Jared would like to set up his retirement account that will begin in 30 years. To play it safe, he wants to assume that he will live forever and he will withdraw $140,000 annually. Assuming his account will earn 11% interest during the next 30 years and 5% interest afterward forever, how much will Jared need to save annually over the next 30 years to fund his retirement account?

Answer 1

Step 1 :	Value of forever annuity
	Present Value of Perpetuity
	PV=A/r-g
	PV= Present Value
	A= Annuity
	r= interest rate
	g= growth rate
	=140000/0.05
	=$2,800,000.0
Step 2 :	Calculatiton of annual saving
	Future Value of an Ordinary Annuity
	= C*[(1+i)^n-1]/i
	Where,
	C= Cash Flow per period
	i = interest rate per period
	n=number of period
	2800000= C[ (1+0.11)^30 -1] /0.11
	2800000= C[ (1.11)^30 -1] /0.11
	2800000= C[ (22.8923 -1] /0.11]
	C=14068.88
	Annual Saving =14068.88