Question

Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 75.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 75.0 when he fully retires, he will begin to make annual withdrawals of $183,850.00 from his retirement account until he turns 87.00. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 6.00% interest rate.

Answer 1

Derek plan to retire on his 65th birthday.From his 76th birthday till his 87th birthday, derek will make annual withdrawal of $183850. So, Total withdrawal amount for 11 years would be = 183850*11 = $2022350.

Derek will start making constribution from his 26th birthday and wil make till his 65th birthday. No. of year for which contribution to be made = 65-26 = 39years

Rate of interest = 6%

So, to calculate annuity using financial calculator with tvm model

FV=$2022350, n = 39years, I/Y=6%, PV =0

So. PMT = -$46179.2

So, Derek is required to make annual contribution of $46179.2 in his retirement account.