You wish to retire in 12 years, at which time you want to have accumulated enoug

Question

You wish to retire in 12 years, at which time you want to have accumulated enough money to receive an annual annuity of $22,000 for 17 years after retirement. During the period before retirement you can earn 8 percent annually, while after retirement you can earn 10 percent on your money

What annual contributions to the retirement fund will allow you to receive the $22,000 annuity?

Please show work and recommendations from site calculators.

What annual contributions to the retirement fund will allow you to receive the $22,000 annuity?

Please show work and recommendations from site calculators.

Explanation / Answer

We first need to compute the amount of money required at the time of retirement:

We have following information about post retirement:

Pmt = 22000

N = 17

R = 10%

We can use following formula to compute the amount of money required at the time of retirement:

PV = Pmt x PVIFA (10%,17)

      = 22,000 x 8.0216

     = 176,474.17

Now we need to calculate annual contribution to accumulate 176,474.17.

FV = 176,474.17

R=8%

N=12

Pmt = FV/ FVIFA (12,8%)

        = 176,474.17/18.977

        = 9299.31

Annual contribution required is 9299.31

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