You plan to retire at age 40 after a highly successful but short career. You would like to accumulate enough money by age 40 to withdraw $200,000 per years for 40 years. Your account has an interest rate of 5%. How much do you need to accumulate in your account by the time you retire?
Amount that needs to be accumulated by the age 40 would be | ||
the present value of an annuity for 40 years | ||
Present Value Of Annuity | ||
= C*[1-(1+i)^-n]/i] | ||
Where, | ||
C= Cash Flow per period | ||
i = interest rate per period | ||
n=number of period | ||
= $200000[ 1-(1+0.05)^-40 /0.05] | ||
= $200000[ 1-(1.05)^-40 /0.05] | ||
= $200000[ (0.858) ] /0.05 | ||
= $34,31,817.27 |
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