Question

According to Northwestern Mutual, 56% of adults in the US don't know how much money they will need to save to retire. This can be problematic when setting up your long-term financial goals. In this activity, we will explore a financial instrument, called a payout annuity, that can be used to invest after retirement and maintain a steady income.

Suppose you want to have an after retirement annual income of $50,000 for 20 years. Suppose you plan to place your retirement fund into an account that does not earn interest. How much money would you need in the account by the time you retire?

Answer 1

To retire with an annual income of $50,000 for 20 years without interest, you will need to save $1,000,000 by the time you retire.

Step-by-step explanation:

If you want to have an after retirement annual income of $50,000 for 20 years and plan to put this money in an account that does not earn interest, you would need to calculate the total amount required to sustain this annual income over the desired period. To do this, you simply multiply the annual amount by the number of years you wish to have that income.

$50,000 (annual income) x 20 years (number of years) = $1,000,000.

Therefore, you would need to have $1,000,000 in your account by the time you retire to achieve a yearly income of $50,000 for 20 years without taking into account potential inflation and without earning any interest on your retirement fund.