Question

Question 3 You believe you will spend $40,000 a year for 20 years once you retire in 40 years (you should assume that the first $40,000 happens at the end of year 40). If the interest rate is 5% per year, how much must you save each year until your retirement (at the end of year 40) to meet your retirement goal?

Answer 1

we have to compute the present value of annual spend from 40 year onward
we have to use financial calculator to solve this problem
Set the calculator at BEGIN mode and put the following
FV		0
PMT		-40000
I		5%
N		20
Compute PV		$498,488
now we have to solve annual saving amount
put in calculator
FV		0
PV		$498,488
I		5%
N		40
Compute PMT		($29,051)
Therefore annual saving required =				$ 29,050.99