Question

Jennifer is the owner of a video game and entertainment software retail store. She is currently planning to retire in 30 years and wishes to withdraw $13,000/month for 20 years from her retirement account starting at that time. How much must she contribute each month for 30 years into a retirement account earning interest at the rate of 4%/year compounded monthly to meet her retirement goal? (Round your answer to the nearest cent.)
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Answer 1

The question is solved in two parts. First, the future value that should be in the account to make withdrawals of $13,000 per month should be calculated.

Information provided:

Monthly withdrawal= $13,000

Time= 20 years*12= 240 months

Interest rate= 4%/12= 0.3333% per month

Enter the below in a financial calculator to compute the future value:

PMT= 13,000

N= 240

I/Y= 0.3333

Press the CPT key and FV to compute the future value.

The value obtained is 4,768,070.14.

Hence, the account should have $4,768,070.14 to make the withdrawals.

Next, the monthly contribution is calculated by entering the below in a financial calculator:

PV= -4,768,070.14

N= 360

I/Y= 0.3333

Press the CPT key and PMT to compute the monthly contribution.

The value obtained is 22,763.50.

Therefore, the monthly contribution is $22,763.50 to meet her retirement goal.