Question

P12-56A (similar to) Question Help You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to draw $240,000 per year for the next 40 years (based on family history, you think you'll live to age 80). You plan to save for retirement by making 20 equal annual installments (from age 20 to age 40) into a fairly risky investment fund that you expect will earn 12% per year. You will leave the money in this fund until it is completely depleted when you are 80 years old. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) 2 (Click the icon to view the present value table.) (Click the icon to view the future value table.) To make your plan work answer the following questions: i (Click the icon to view the questions.) 1. How much money must you accumulate by retirement? (Hint Find the present value of the $240,000 withdrawals.) Calculate the present value to find out how much money must be accumulated by retirement. (Round your answer to the nearest whole dollar.) The present value is $

Answer 1

Solution 1:

Amount to be accumulated by retirement = Present value annual withdrawls discounted at 12%

= $240,000 * Cumulative PV factor at 12% for 40 periods

= $240,000 * 8.244

= $1,978,560