Question

You plan to save $600 per month for the next 40 years until you retire. After you retire you want to withdraw $250,000 per year for 30 years. If you expect to earn 6% after retirement, what annual rate will you need to earn until you retire to meet your goal?

Answer 1

Step-by-step explanation:

The question is solved by first calculating the amount saved for retirement.

Enter the below in a financial calculator to compute the present value:

PMT= -250,000

N= 30

I/Y= 6

Press the CPT key and PV to compute the present value.

The value obtained is 3,441,207.79.

Therefore, the amount saved at the time of retirement is $3,441,207.79.

The annual interest rate needed to meet the retirement goal is computed by entering the below in a financial calculator:

FV= 3,441,207.79

N= 40 years*12= 480 months

PMT= 600

Press the CPT key and I/Y to compute the interest rate.

The monthly interest is 0.8065.

Therefore, the annual interest rate is 0.8065%*12= 9.6777%

= 9.68%