Hillary plans to retire in her 60s. In addition to MPF, she has a supplemental r
ID: 2805244 • Letter: H
Question
Hillary plans to retire in her 60s. In addition to MPF, she has a supplemental retirement investment plan. All funds invested in this plan will earn 5% annually. From this investment plan, Hillary hopes to make 25 annual withdrawals of $140,000, with the first withdrawal on her 66th birthday and the last on her 90th birthday.
a) What lump sum does Hillary need to invest on her 30th birthday to provide for the 25 withdrawals of $140,000 each?
b) What equal annual payment does Hillary need to invest in order to provide for the 25 withdrawals? The first payment will be on her 31st birthday, and the last will be on her 65th birthday.
Explanation / Answer
A. Present Value of the 25 withdrawals on her 66th birthday
PV= 140000/(1.05) + 140000/(1.05)^2 ......+ N
PV= 1973152.24$
The lumpsum amount he needs to invest on her 30th birthday = 1973152.24/(1.05)^36 = 340679.36$
B. If she deposits it in installments then the future value= 1973152.24$
N= 36
Interest = 5
1973152.24$ = pmt/(1.05) + pmt/(1.05)^2+.....N
When solved payment each year for 36 years = 20588.77$
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