Question

When you start your first full-time job, you plan to open a retirement savings account. Your goal is to retire 25 years from the day you start working. You will use a retirement investment account that pays 5.5% nominal interest, compounded annually, and you want to have exactly $400,000 in that account when you retire. You will make end of year deposits every year for the 25 years working, and you expect your income will increase 4% per year throughout your career. You plan to start your payments at the end of year 1 with a specific amount of deposit and increase your deposits by 3.5% each year.

How much should you deposit the first year to reach your retirement financial goal?

Answer 1

B C FV=([(1+r)^n-(1+g)^n] =(r-g)) A 22 (1st deposit amount 23 24 Here, 25 26 1 Interest rate per annum 27 2 Number of years 28 3 Number of compoundings per per annum 29 4 = 1+3 Interest rate per period (r) 30 5 = 2x3 Number of periods (n) 31 Growth rate (g) 32 Retirement a/c balance required (FV) 33 5.5% 25 1 5.5% 25 3.5% 400,000 $ 34 1st deposit amount $ 5,516.68 400000=(((1+5.5%)^25-(1+3.5%)^25)(5.5%-3.5%)) 35

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