A self-employed investor who has just turned 35 wants to save for his retirement

Question

A self-employed investor who has just turned 35 wants to save for his retirement with a Keogh account. He plans to retire on his 65th birthday and wants a monthly income, beginning the month after his 65th birthday, of $2,000 (after taxes) until he dies.

• He has budgeted conservatively, assuming that he will die at age 95.

• Assume that until he reaches age 65, the Keogh account earns 8 percent interest, compounded annually, which accumulates tax free.

• At age 65, assume that the interest

accumulated in the Keogh account pays a lump-sum tax at a rate of 30 percent.

• Thereafter, assume that the investor is in a 0 percent tax bracket and that the interest on his account earns 7 percent interest, compounded monthly.

How much should the investor deposit annually in his Keogh account beginning on his 35th birthday and ending on his 64th birthday to finance his retirement?

Explanation / Answer

The Employee will reaches age of 65 he want pay tax is 8% at that time he will get $2,000.

2,000*8/100 = 160.

$160 he want pay tax.

If tax rate is 30%

2,000*30/100 = 600

if tax rate 30% he wants pay $600 .

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