Question

Answer the following 2 questions using time value of money (your financial calculator or Excel including inputs).

I can only put away $2,000 a year toward retirement. I am 25 and plan on retiring at 65 and earning 5%. How much will I have at retirement?
I want to be able to have $50,000 a year during retirement. I want to make sure that I can have it until I am 100 years old. I plan to retire at 65. I can earn 5%. How much do I need to have at retirement to be able to make it?

Answer 1

Question 1:

PV = 0, FV = ?, PMT = -2000, n = 40, i = 5

Using a financial calculator or Excel, solving for FV, we get:

FV = $200,418.12

Therefore, with an annual contribution of $2,000 and earning 5%, at the age of 65, the retirement fund will have a balance of approximately $200,418.12.

Question 2:

PV = ?, FV = 0, PMT = -50,000, n = (100-65)= 35 years x 12 = 420 months, i = 5/12

Using a financial calculator or Excel, solving for PV, we get:

PV = $1,018,788.83

Therefore, to have $50,000 per year during retirement until the age of 100, with an earning rate of 5% and inflation not being accounted for, we need to have a retirement fund balance of approximately $1,018,788.83 at the age of 65.