Question

Daryl wishes to save money to provide for his retirement. Beginning one year from now, Daryl will begin depositing the same fixed amount each year for the next 30 years into a retirement savings account. Starting one year after making his final deposit, he will withdraw $100,000 annually for each of the following 25 years (i.e. he will make 25 withdrawals in all). Assume that the retirement fund earns 12% annually over both the period that he is depositing money and the period he makes withdrawals. In order for Daryl to have sufficient funds in his account to fund his retirement, how much should he deposit annually (rounded to the nearest dollar)?

Answer 1

Information provided:

Annual withdrawal= $100,000

Time= 25 years

Yield to maturity= 12%

The question is calculated by first computing the present value.

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

PMT= 100,000

I/Y= 12

N= 25

Press the CPT key and PV to compute the present value.

The value obtained is 784,313.91.

Therefore, Darly must have retirement saving of $784,313.91 to withdraw $100,000 per year for 25 years.

Information provided:

Future value= $784,313.91

Time= 30 years

Yield to maturity= 12%

The annual deposit is calculated by entering the below in a financial calculator:

FV= 784,313.91

N= 30

I/Y= 12

Press the CPT key and PMT to compute the annual deposit.

The value obtained is 3,249.93.

Therefore, the Darly must deposit $3,249.93 annually to fund his retirement.