4.5 A more complex annuity payment calculation: You would like to put away some

Question

4.5 A more complex annuity payment calculation: You would like to put away some money every month for your retirement when you reach 30 years old. You plan to retire at age of 68 and live up to 118 years old. You would like to be able to draw S1,000, called annuity payment, from the saving from the first month of your 69th year, i.e., the first month after your 68th birthday. The money is all used up when you reach your 118th birthday. If the annuity interest rate is 5% per year, how much you need to pay to your annuity fund when you reach 30? You can use a method similar to the mortgage calculation.

Explanation / Answer

First, we need to calculate amount required to invest on retirement =PV(5%/12,(118-68)*12,-1000) $220,200.00 Now, we need to calculate monthly payment required to get $ 220,200 at retirement 220200=FV(5%/12,38*12,x) Solving for x, will give x=monthly payment= $162

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