Question

To live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday.

Required:

Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%?

What flaws might exist in your calculations?

What variables could lead to different outcomes?

What actions could you take ensure you reach your target goal?

Answer 1

Money to be set aside each year is
PV*PVA n = 35, k =5% = $2 m
PVA = (1-(1/(1+r)^n)/r
(1-(1/1.05^35)/0.05
PV*16.3742 = 2000000
PV = 2000000/16.3742
122143.3719
I will have to set aside $ 122143 every year

Flaws that might exist is the rate difference or the inflation which might have not be considered which might lead to varied results

The interest rate, the amount in future to be needed, these variables could lead to different outcomes