Question

Ross has decided that he wants to build enough retirement wealth that, if invested at 5 percent per year, will provide him with $4,700 of monthly income for 25 years. To date, he has saved nothing, but he still has 15 years until he retires. How much money does he need to contribute per month to reach his goal? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Contribute per month $

Answer 1

Standing at retirement - We need the present value of annuity of $4700.

Monthly rate = 5% / 12 = 0.41666666%, no. of months = 25 x 12 = 300, Monthly Income = $4700

Present value (PV) of an ordinary annuity is computed as follows -

Standing today - We require the above amount for receiving $4700 monthly income. The above amount is the future value of the annuity that we deposit annually for 15 years.

No. of months until retirement = 15 x 12 = 180

Future value of an annuity is computed as follows -

or,

or,

or, A = $3,007.91429 or $3,007.91

Therefore, you need to deposit $3,007.91 per month for 15 years to reach your goal.