Answer to Question #161056 in Finance for shail

Question

You are planning to retire in twenty years. You'll live ten years after retirement. You want to be able to draw out of your savings at the rate of $10,000 per year. How much would you have to pay in equal annual deposits until retirement to meet your objectives? Assume interest remains at 9%

Answer 1

First, let's calculate the present value (in 10 years) of the total amount needed to withdraw after the retirement.

PV = 10,000 (PVoP, 0.09, 10) = $64,176.58.

Then, let's calculate how much is needed to save per year to meet this value in 20 year’s time.

A = 64,176.58 (PMT, 0.09, 20) = $1,254.43.