Question

You believe you will spend $33,000 a year for 13 years once you retire in 26 years. If the interest rate is 5% per year, how much must you save each year until retirement to meet your retirement goal? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

PV at end of 26 year of future cash outflows

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 33000*((1-(1+ 5/100)^-13)/(5/100))

PV = 309987.91

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

309987.91= Cash Flow*(((1+ 5/100)^26-1)/(5/100))

Cash Flow = 6064.7

this is the future value to be met with cash saved in coming 26 years