Question

You believe you will spend $30,000 a year for 10 years once you retire in 20 years. If the interest rate is 5% per year, how much must you save each year until retirement to meet your retirement goal? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Annual payment= = $9072.77

Step-by-step explanation:

Giving the following information:

You believe you will spend $30,000 a year for 10 years once you retire in 20 years. If the interest rate is 5% per year.

You need to save $300,000 in 20 years. We know the final value, the number of years and the interest rate. The only information missing is the year payment

We need to use the following formula:

Future value= {[A*[(1+i)^n-1]}/i

A= annual payment

n= number of years

i= interest rate

Isolating A:

Giving the following information:

You believe you will spend $30,000 a year for 10 years once you retire in 20 years. If the interest rate is 5% per year.

You need to save $300,000 in 20 years. We know the final value, the number of years and the interest rate. The only information missing is the annual payment.

We need to use the following formula:

Future value= {[A*[(1+i)^n-1]}/i

A= annual payment

n= number of years

i= interest rate

Isolating A:

A= (FV*i)/[(1+i)^n-1]

A= (300000*0.05)/(1.05^20-1)= $9072.77