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A 20 year old wants to retire as a millionaire by the time she turns 70....

A 20 year old wants to retire as a millionaire by the time she turns 70. (With life spans increasing, and the social security fund being depleted by baby boomers, the retirement age will have invariably risen by the time she reaches 65 years of age, probably to something even higher than 70, actually.) How much will she have to save at the beginning of each month if she can earn 5% compounded annually and have $1,000,000 by the time she is 70?

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Answer #1

The amount to be saved in each month is found using the future value of annuity equation. The payments are made at the beginning of each month, hence the future value of annuity due equation is used.

In the above equation, solving for the value of A will give the amount we have to save each month to reach the retirement goal in 50 years.

The amount to be saved at the beginning of each month = $ 373.17 $ 373.2

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