You just turned 34 years old, and you want to begin saving for retirement at the

Question

You just turned 34 years old, and you want to begin saving for retirement at the end of the year. Assume that you retire in 30 years at age 65, and would like to have an income of $100,000 per year for 20 years after retirement. How much must you save each year to finance your retirement income? Assume a 10% interest rate, you make the first payment at the end of the year when you turn 35 and the last payment on the day you turn 64 (30 payments), and that you make the first withdrawal when you turn 65 and the last withdrawal when you turn 84 (20 payments).

Explanation / Answer

To have an income of $100,000 per year for 20 years after retirement, you will need to save $2,000,000.

Therefore, you will require the following amount to be saved each year for 30 years:

A = P(1+r)t

Or, 2,000,000 = P(1.10)30

Or, P = 2,000,000/(1.10)30

= $114,617.11

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