Question

You plan to retire in 35 years and withdraw $450,000 per year for 30 years during...

You plan to retire in 35 years and withdraw $450,000 per year for 30 years during retirement. If you can earn 12% until you retire and 6% during retirement, how much must you deposit each month until you retire to meet your goal?

  • A. $6,868

  • B. $963

  • C. $2,606

  • D. $700

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Homework Answers

Answer #1

While Retirement,

Annual Withdrawal during Retirement = $450,000

Interest Rate = 6%

Time Period = 30 years

Present Value of Annuity = P[(1 - (1+r)-n)/r]

Present Value of Annuity = 450,000[(1 - (1.06)-30)/0.06]

Present Value of Annuity = $6,194,174.02

Before Retirement,

Accumulated Amount Required = $6,194,174.02

Time Period = 35 years = 420 months

Interest Rate = 12%

Calculating Monthly Payment,

Annuity Payment = r(FV)/((1+r)n - 1)

Monthly Payment = (0.12/12)(6,194,174.02)/((1.01)420 - 1)

Monthly Payment = $963

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