Question

7. Kevid Kevin Kirsch has asked you to assist him in setting up a plan to acc Shown below is some information that kevin has provided. in setting up a plan to accumulate savings for retirement. Age at beginning of savings term: Estimated age at retirement: 65 What is the length of savings term: Estimated age of death: 85 What is the length of retirement term: Projected monthly withdrawal to be made during retirement: Estimated rate of return during saving term: Estimated rate of return during retirement: $5,000 12% annually 6% annually Your Task: Compute the amount that Kevin needs to save each month until he allow him to make the desired im to make the desired withdrawals during retirment. For time of payments in the fund ang withdrawals from the fund, use END. Review Mel Rich example in the text book Kevin needs to save each month until he retires, which will Work-Earn-Save 888888 Retirement ose000 Second: Find the payment amount into the fund: $ aaaa First: Find the amount needed at the beginning of retirement to allow for the desired $5,000 monthly withdrawals during retirment. Second: i/y= PMT= FVE

Answer 1

First, we calculate the amount required at retirement to enable the monthly withdrawals during retirement. The amount required at retirement is calculated as below :

I/Y = 0.50 (rate of return earned per month = yearly rate of return / 12 = 6% / 12 = 0.50%)

NPER = 240 (Length of retirement term in months = number of years in retirement * 12 = 20 * 12 = 240)

PMT = -5000 (Monthly withdrawal. This is entered with a negative sign because it is a withdrawal)

FV = 0 (Amount remaining at age 85 = zero)

CPT --> PV

PV is calculated to be $697,903.86

Second, we calculate the monthly saving required to accumulate the required amount at retirement. The monthly saving required is calculated as below :

I/Y = 1 (rate of return earned per month = yearly rate of return / 12 = 12% / 12 = 1%)

NPER = 480 (Length of saving term in months = number of years until retirement * 12 = 40 * 12 = 480)

PV = 0 (amount currently saved is zero)

FV = 697903.86 (required amount at retirement)

CPT --> PMT

PMT is calculated to be $59.32

Kevin needs to save $59.32 each month