Question

A couple will retire in 40 years; they plan to withdraw $39000 a year in retirement, and they will make 20 withdraw. They believe that they can earn 8% interest on the retirement savings. If they make an annual deposit into their retirement savings, how much will they need to save each year? Assume the first deposit comes at the end of the first year, and the first withdraw comes at the end of yer 41. Please show all work including formulas.

A. 1,478.09

B. 9,572.69

C. 39,000

D. 78,000

Answer 1

Answer:

Correct answer is:

A. 1,478.09

Explanation:

Retirement period:

PMT = Annual withdrawal at the end of each year = $39000

NPER = 20

RATE = 8%

Retirement fund required at date of retirement = PV(rate, nper, pmt, fv, type) = PV(8%, 20, -39000, 0, 0) =$382,907.75

Deposit period:

Retirement fund required at the end of year 40 from now = $382,907.75

NPER = 40

RATE = 8%

Annual deposit into their retirement savings at the end of each year = PMT(rate, nper, pv, fv, type)

= PMT(8%, 40, 0, -382,907.75, 0)

= $1,478.09

Annual deposit into their retirement savings at the end of each year = $1,478.09

Option A is correct and other options B, C and D are incorrect.