Question

A couple will retire in 40 years. They plan to spend $50,000 a year in retirement, which they expect to last 25 years. They think they can earn 8.0% annual interest on their retirement savings. About how much must they save each year while working to reach the retirement goal?

		$13,343.47
		$2,060.32
		$930.23
		$4,825.20

Answer 1

First calculate the value required to support 25 payments or withdrawals:

Using financial calculator BA II Plus - Input details:	#
I/Y = R = Rate or yield / frequency of coupon in a year =	8.000000
PMT = Payment	-$50,000.00
N = Number of years remaining x frequency =	25
FV = Future Value =	$0.00
CPT > PV = Present value = Value required to support 25 withdrawals =	$533,738.81

Now, calculate the payment to reach the above value required:

Using financial calculator BA II Plus - Input details:	#
FV = Future Value =	-$533,738.81
PV = Present Value =	$0.00
I/Y = Rate / Frequency =	8.00
N = Number of payments	40
CPT > PMT = Payment = Payment required to reach the goal =	$2,060.32

Correct option is > $2,060.32