Sorry this is a long question! You are trying to decide how much money you will

Question

Sorry this is a long question!

You are trying to decide how much money you will need at retirement. You want to travel right after you retire. To finance your travels you think you will need income of $221,000 per year (end of year). You expect to stay healthy enough for travel for the first 15 years, so you will make a withdrawal of $221,000 at the end of each of those 15 years. Once your active travel years are over you will settle down into a retirement home. During your retirement home years you will need $205,000 per year. You expect to live in the retirement home for 6 years. If retirement savings will earn a return of 6% then how much will you need at retirement to find these planned withdrawls?

Explanation / Answer

Answer:

Above problem is based on present value of future cash flows. We need to calculate present value of all cash flows needed for travel and for retirement home discounted @ 6%.

Answer: $ 2,567,031.69 is needed for these planned withdrawls.

Description Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Requirement for the year for travel/retirement home           221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    221,000.00    205,000.00    205,000.00    205,000.00    205,000.00    205,000.00    205,000.00 P.V. factor @ 6.00%                   0.9434            0.8900            0.8396            0.7921            0.7473            0.7050            0.6651            0.6274            0.5919            0.5584            0.5268            0.4970            0.4688            0.4423            0.4173            0.3936            0.3714            0.3503            0.3305            0.3118            0.2942 Present Value           208,490.57    196,689.21    185,555.86    175,052.70    165,144.06    155,796.28    146,977.62    138,658.13    130,809.56    123,405.25    116,420.04    109,830.23    103,613.42      97,748.51      92,215.58      80,697.49      76,129.71      71,820.48      67,755.17      63,919.97      60,301.86 Total Present Value       2,567,031.69

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