Jack has just turned 40 years old. He has currently accumulated $45,000 toward h
ID: 1174872 • Letter: J
Question
Jack has just turned 40 years old. He has currently accumulated $45,000 toward his planned retirement at age 60. He wants to accumulate enough money over the next 20 years to provide for a 25-year retirement annuity of $135,000 at the beginning of each year, starting with his 60th birthday. He plans to save $18,000 at the end of each year for the next 10 years. What equal amount must be saved at the end of years 11 through 20 to meet this objective. The interest rate for the first 10 years will be 3%. After that time, the interest rate is expected to be 7%.
Explanation / Answer
nest egg required at retirement:
FV = 0, PMT = 135,000, rate = 7%, N = 25
use PV function in Excel with type as 1
value of nest egg = 1,683,360.09
value of investment in 10 years from now
PV = 45,000, N = 10, rate = 3%, PMT = 18,000
use FV function in Excel
value in 10 years = 266,826.06
PV = 266,826.06, FV = -1,683,360.09, rate = 7%, N = 10
use PMT function in Excel
amount to be saved from 11 to 20 = 83,847.37
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