Question

You want to save sufficient funds to generate an annual cash flow of $55,000 a year for 25 years as retirement income. You currently have no retirement savings but plan to save an equal amount each year for the next 38 years until your retirement. How much do you need to save each year if you can earn 7.5 percent on your savings?

Answer 1

Annual deposit= $7,056.46

Step-by-step explanation:

Giving the following information:

You want to save sufficient funds to generate an annual cash flow of $55,000 a year for 25 years as retirement income. You plan to save an equal amount each year for the next 38 years until your retirement. You can earn 7.5 percent on your savings.

Final value= 55,000*25= $1,375,000

We need to use the following formula:

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

A= annual deposit

Isolating A:

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

A= (1,375,000*0.075)/ [(1.075^38)-1]= $7,056.46