Question

You are working on a retirement savings plan. You will deposit money every month for the next 40 years (480 months total) in your account. You think you will earn 0.7% per month during this time. If your retirement goal is to have $2 million in 40 years, how much do you have to deposit each month? What if your goal is to have $3.5 million?

Answer 1

Amount to be invested can be derived using the below mentioned formula:

A is the equated amount also know as annuity amount

r is the interest rate

n is number of time periods

Using the above formula we get:

A = (2000000 * 0.7%) / ((1+0.7%)^480-1) = 509.95 (approximated to two decimal points)

Hence, for accumulating a sum of $2 million, $509.95 needs to be deposited monthly for 40 years.

Similarly, for sum of $3.5 million, we get the following equation:

A = (3500000 * 0.7%) / ((1+0.7%)^480-1) = 892.40 (approximated to two decimal points)

Hence, for accumulating a sum of $3.5 million, $892.40 needs to be deposited monthly for 40 years.