Question

Tom currently has $50,000 in savings intended for his retirement in 10 years. He expects to...

Tom currently has $50,000 in savings intended for his retirement in 10 years. He expects to live for 15 years post-retirement and he would like to withdraw $110,000 at the end of each of his retirement years. If he can invest his money in an account that pays 10%, compounded annually, how much does he need to contribute to his account every year to ensure he meets his retirement goals?

Question 28 options:

$95,392.63

$65,884.09

$60,634.38

$49,609.55

$44,359.84
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Homework Answers

Answer #1

Present value of post retirement amount = Annuity * [1 - 1 / (1 + r)n] / r

Present value of post retirement amount = 110,000 * [1 - 1 / (1 + 0.1)15] / 0.1

Present value of post retirement amount = 110,000 * [1 - 0.23939] / 0.1

Present value of post retirement amount = 110,000 * 7.60608

Present value of post retirement amount = 836,668.7457

Future value of savings = Present value * (1 + r)n

Future value of savings = 50,000 (1 + 0.1)10

Future value of savings = 50,000 * 2.59374

Future value of savings = $129,687.123

Remaining amount = 836,668.7457 - 129,687.123 = 706,981.6227

Future value = Annuity * [(1 + r)n - 1] / r

706,981.6227 = Annuity * [(1 + 0.1)10 - 1] / 0.1

706,981.6227 = Annuity * 15.93742

Annuity = $44,359.84

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