Question

You are 25 years old and decide to start saving for your retirement. You plan to save $X at the end of each year​ (so the first deposit will be one year from​ now), and will make the last deposit when you retire at age 67. Suppose you earn 4% per year on your retirement savings. You want the present value of your total retirement savings to be $2Million. How do you need to save each year (the same amount at the end of every year)? Round your answer to the nearest $0.01

Answer 1

Your Age = 25 years

Retirement Age = 67 years

Years to retirement = 67-25 = 42 years

Interest rate on retirement savings = 4% per year

Present Value of retirement savings = $2 million = $2,000,000

Amount $X needed to be saved every year can be found using the PMT function in spreadsheet

PMT(rate, number of periods, present value, future value, when-due)

Where, rate = Interest rate on retirement savings = 4%

number of periods = Years to retirement = 42 years

present value = Present Value of retirement savings = $2,000,000

future value = 0

when-due = when is the payment made each year = end = 0

X = PMT(4%, 42, -2000000, 0, 0) = $99,080.40

X = $99,080.40