Question

When you retire 40 years from now, you plan to make 10 withdrawals from your savings account. You will need $130,000 per year for 2 years, then $140,000 for 3 years and $160,000 for 5 years, in that order at the end of each year. You want to start saving for retirement now and plan to make end of year annual payments for 20 years into an account that yields 8 percent compounded annually. After these deposits you plan to leave the money in the savings account until retirement earning the same interest. What should these 20 equal annual payments be in order to satisfy your retirement needs?

Answer 1

To calculate the equal annual payments you need to make for 20 years in order to satisfy your retirement needs, you can use the concept of present value.

Step-by-step explanation:

To calculate the equal annual payments you need to make for 20 years in order to satisfy your retirement needs, you can use the concept of present value. Present value is the current worth of a future sum of money, and it takes into account the time value of money, which is the idea that money today is worth more than the same amount of money in the future.

In this case, you will need to determine the present value of all your future withdrawals. Since the interest is compounded annually at a rate of 8%, you can use the formula for present value of an annuity:

Present Value = C * [1 - (1 + r)^(-n)] / r

Where C is the annual payment, r is the interest rate, and n is the number of years.

Using this formula, you can calculate the equal annual payments needed to satisfy your retirement needs.