Question

Monica has decided that she wants to build enough retirement wealth that, if invested at 8 percent per year, will provide her with $5,000 of monthly income for 20 years. To date, she has saved nothing, but she still has 25 years until she retires. How much money does she need to contribute per month to reach her goal

Answer 1

Monica contributes "$628.55" every month to reach her goal.

Step-by-step explanation:

The given value is:

Monthly income of Monica for 20 years = $5000

As we know,

Value of withdrawls at retirement,

=
`PMT* ((1-((1)/(1+r^n))))/(r)`

On putting the values in the above formula, we get

=
`5000* ((1-((1)/(1.00667^(240)))))/(0.00667)`

= $597,771.46

Therefore,

Fv (Future value) = $597,771.46

Now,

`PMT=(Fv)/(((1+r)^n-1))/r`

On putting the values in the above formula, we get

`PMT=(597771.46)/((((1.00667^(300))-1)/0.00667))`

`PMT =` $628.55

So that the monthly savings will be "$628.55".