You plan on retiring in 29 years. To support your retirement, you want to be abl

Question

You plan on retiring in 29 years. To support your retirement, you want to be able to make 32 annual withdrawals of $120,000 each year, with the first withdrawal on the day you retire. Assuming you can earn 6.5% on your retirement account:

A) How large of a deposit do you have to make today to be able to achieve your retirement goal?

B) If you decide to save for your retirement by making annual deposits instead of a lump sum today, how much should your annual deposits be, if your first deposit is made at the end of the year and your last deposit one year before you retire (end of year 28)

C) Calculate monthly deposit for 28 years, Use PV not FV for monthly.

Explanation / Answer

Discounting rate is 6.5 / 12 = 0.54%

Discounting rate year 6.5 Cash flow Dsic. Cash flow 1 0 0 29 0.16 120000.00 19321.58 30 0.15 120000.00 18142.33 31 0.14 120000.00 17035.05 32 0.13 120000.00 15995.35 33 0.13 120000.00 15019.11 34 0.12 120000.00 14102.45 35 0.11 120000.00 13241.74 36 0.10 120000.00 12433.56 37 0.10 120000.00 11674.70 38 0.09 120000.00 10962.16 39 0.09 120000.00 10293.11 40 0.08 120000.00 9664.89 41 0.08 120000.00 9075.01 42 0.07 120000.00 8521.14 43 0.07 120000.00 8001.07 44 0.06 120000.00 7512.74 45 0.06 120000.00 7054.22 46 0.06 120000.00 6623.68 47 0.05 120000.00 6219.42 48 0.05 120000.00 5839.83 49 0.05 120000.00 5483.41 50 0.04 120000.00 5148.74 51 0.04 120000.00 4834.50 52 0.04 120000.00 4539.43 53 0.04 120000.00 4262.38 54 0.03 120000.00 4002.23 55 0.03 120000.00 3757.97 56 0.03 120000.00 3528.61 57 0.03 120000.00 3313.25 58 0.03 120000.00 3111.03 59 0.02 120000.00 2921.15 60 0.02 120000.00 2742.87 274378.69 Answer to A) Amount to be deposited today is 274378.69 Answer to B) Let yearly deposits be X sum of PV factor 28 years @ 6.5 % = 12.75 12.75X - 274379 = 0 12.75X = 274379 X = 21520 Yearly deposits to be made is 21520 Answer to C) Let monthly deposits be X years = 28 therefore months = 336

Discounting rate is 6.5 / 12 = 0.54%

sum of PV factor 336 months @ 0.54 % = 154.56 154.56X - 274379 = 0 154.56X = 274379 X = 1775.23 monthly deposits to be made is 1775.23

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