You are trying to plan for retirement in 35 years and currently you have $95,000

Question

You are trying to plan for retirement in 35 years and currently you have $95,000.00 in a savings account and $17,500.00 in stock. In addition you plan on adding to your savings by depositing $3,000.00 per year in your SAVINGS account at the end of each of the next 10 years and then $10,000.00 per year at the end of each year for the final 25 years until retirement. Assuming your savings account returns 2% compounded annually while your investment in stocks will return 5% compounded annually, how much will you have when you retire in 35 years? [Ignore taxes.]

Explanation / Answer

Value of the savings account after 10 years can be calculated using FV function

N = 10, PV = 95,000, PMT = 3,000, I/Y = 2% => Compute FV = $148,653.63

The value of savings after another 25 years is

N = 25, PV = 148,653.63, PMT = 10,000, I/Y = 2% => Compute FV = $564,185.04

Value of stock after 35 years is

N = 35, PV = 17,500, PMT = 0, I/Y = 5% => Compute FV = $96,530.27

Hence, total amount you have at retirement = $660,715.31

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