Question

You just turned 20 years old and want to retire when you turn 65. You expect to live for 25 years after retirement and want to withdraw $100,000 per year in retirement, starting on your 65th birthday. You expect to earn a return of 6% on your investments every year. What is the present value (as of your 65^th birthday) of the withdrawals you expect to make?

How much money should you save each year if you make the first deposit now and the last one one year before you turn 65?

Answer 1

Ans:- (a) In this part we need to find the Present value. we will use the PV function of excel to find the answer.

RATE = 6%, NPER = 25 years, PMT = $100,000.

Therefore the PV of all the withdrawals as on 65th birthday will be $1,355,035.75.

(b) In this Part, we need to find the annual savings. we will take PV in part (a) as FV and use the PMT function of excel to find the annual savings.

RATE = 6%, NPER = 65 - 20 = 45, FV = $1,355,035.75

Therefore the annual savings she needs to do is $6,008.81.

Note:- If this answer helps you pls give thumbs up.