You have just turned 22 years old, received your bachelor\'s degree, and accepte

Question

You have just turned 22 years old, received your bachelor's degree, and accepted your first job. Now you must decide how much money to put into your retirement plan. The plan works as follows: Every dollar in the plan earns 7.4 % per year. You cannot make withdrawals until you retire on your 65th birthday. After that, you can make withdrawals as you see fit. You decide that you will plan to live to 100 and work until you turn 65. You estimate that to live comfortably in retirement, you will need $ 110,000 per year, starting at the end of the first year of retirement and ending on your 100th birthday. You will contribute the same amount to the plan at the end of every year that you work. How much do you need to contribute each year to fund your retirement?

Explanation / Answer

PV of what you need at age 65 to fund your 35-year retirement. PMT (Annual Withdrawl) $110,000.00 Rate 7.40% Period 35 years Present Value = PV(7.40%,35,-110000) $1,364,303.39 Change that number to the FV and calculate the PMT you need each year from age 22-65 (43 years) FV = Final Balance $1,364,303.39 Period 43 years Annual Deposit = PMT(7.40%,43,0,-136303.39) $4,915.94 Annual Contribution $4,915.94

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