Question

Jim and Nancy want to retire in 30 years. They plan to spend $130,000 a year...

Jim and Nancy want to retire in 30 years. They plan to spend $130,000 a year in retirement, which they expect to last 35 years. Jim and Nancy believe they can earn 5% interest on their retirement investments.

About how much must they invest each year while working to reach their goal?

$27,159

$29,257

$32,040

$34,231
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Answer #1

Answer is $32,040

Annual Spending = $130,000
Interest Rate = 5%
Period after retirement = 35 years

Amount required at retirement = $130,000 * PVIFA(5%, 35)
Amount required at retirement = $130,000 * (1 - (1/1.05)^35) / 0.05
Amount required at retirement = $130,000 * 16.3742
Amount required at retirement = $2,128,646

Period to retirement = 30 years

Annual Deposit * FVIFA(5%, 30) = $2,128,646
Annual Deposit * (1.05^30 - 1) / 0.05 = $2,128,646
Annual Deposit * 66.43885 = $2,128,646
Annual Deposit = $32,040

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