You have just turned 25, and you intend to start saving for your retirement. You

Question

You have just turned 25, and you intend to start saving for your retirement. You plan to retire in 43 years when you turn 68. During your retirement you would like to have an annual income of $120,000 per year for the next 27 years (until age 95).
Calculate how much you would have to save between now and age 68 in order to finance your
retirement income.
Make the following assumptions:
- All savings draw compounded interest of 10 percent per year.
- You make the first payment today and the last payment on the day of your turn 68 (43 annual
end of the year payments).
-You make the first withdrawal when you turn 68 and the last withdrawal when you turn 95
(27annual withdrawals).

Explanation / Answer

According to the given problem, we need to calculate the present value for the last 27yrs.When he is at the age of 95. Payments = $120,000 Number of years = 27 Interest rate = 10% per year Calculating the present value using the excel sheet: Step1: Go to excel and click "insert" to insert the function Step2:Select the "PV" function as we are finding the present value for the last 27yrs in this case. Step3: Enter the values as Rate = 10%, Nper = 27; PMT = -120000; FV = 0 Step4: Click "OK" to get the desired value The value comes to "$1,108,466.78" Therefore, the present value is $1,108,466 This present value becomes the future value at the age of 68 Calculating the Annual payments for 43yrs Step1: Go to excel and click "insert" to insert the function Step2:Select the "PMT" function as we are finding the Annual payments for the first 43yrs in this case. Step3: Enter the values as Rate = 10%, Nper = 43; PV = 0; FV = -1108466 Step4: Click "OK" to get the desired value The value comes to "$1,871" Therefore, the annual payments for the first 43yrs will be $1,871 to save $1,108,466 at the age of 68.

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