Question

Your dad wants to retire in 20 years. He expects to live for 15 years after his retirement, and during retirement, he wants to withdraw $60,000 at the end of each year from his retirement savings account. The first withdrawal will be made at the end of one year after his retirement. The annual interest rate is 10%. What amount must be in your dad's retirement savings account on the day of his retirement (20 years from today) in order to make the withdrawals he wants?

a) $900,000.00
b) $502,001.25
c) $704,350.48
d) $1,040,681.50
e) None of the above

Answer 1

The correct answer is option c) $704,350.48. To calculate the amount needed in your dad's retirement savings account, use the formula for the present value of an annuity.

Step-by-step explanation:

To calculate the amount needed in your dad's retirement savings account, we can use the formula for the present value of an annuity:

PV = PMT * [(1 - (1 + r)^-n) / r]

Where PV is the present value of the annuity, PMT is the amount to be withdrawn per year, r is the interest rate, and n is the total number of withdrawals. In this case, PMT = $60,000, r = 10% (or 0.10), and n = 15.

Plugging in these values into the formula:

PV = $60,000 * [(1 - (1 + 0.10)^-15) / 0.10] = $704,350.48

Therefore, the amount that must be in your dad's retirement savings account on the day of his retirement is approximately $704,350.48. So the correct answer is option c) $704,350.48.