Question

Robin is planning for her retirement. She is currently 37 years old and plans to retire at age 62 and live until age 97. Robin currently earns $100,000 per year and anticipates needing 80% of her income during retirement. She anticipates Social Security will provide her with $15,000 per year at age 62, leaving her with required savings to provide $65,000 ($100,000 x 0.80 - $15,000) annually during retirement. She believes she can earn 11% on her investments and inflation will be 2% per year. Robin would like to preserve her capital so that the capital balance required at age 62 is maintained until age 97. How much must Robin save at the end of each year, if she wants to make her last savings payment at age 62 to meet her retirement goal and maintain her capital balance

Answer 1

$10,899.37.

Step-by-step explanation:

We can calculate the robin's saving at the end of each year if she wants to make her last savings payment at age 62 to meet her retirement goal and maintain her capital balance by calculating The Present Value of an annuity of $ 65000 with 2% inflation per annum for 25 years

The annual amount needed after age of 62 years after 25 years by Robin is $65000.

The Present Value of an annuity of $ 65000 with 2% inflation per annum for 25 years will be = 65000 * PVIFA 2, 25

PV = 65000 * 19.5235

PV = $1,269,028

For $1,269,028 with 11% return on savings for 25 years Robin will have to save amount X in the following equation:

X= 1269028/ FVIFA 11, 25

X= $10,899.37