Question

a. You believe you will spend $42,000 a year for 18 years once you retire in 36 years. If the interest rate is 5% per year, how much must you save each year until retirement to meet your retirement goal? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Information provided:

Yearly expense= $42,000

Time= 18 years

Interest rate= 5%

The question is solved by calculating the present value to compute the amount that must be available at retirement.

Enter the below in a financial calculator to compute the present value:

PMT=42,000

N= 18

I/Y= 5

Press the CPT key and PV to compute the present value.

The value obtained is 490,962.65.

Hence, $490,962.65 must be available at the time of retirement to meet the retirement goal.

The amount to be saved each year until retirement is computed by entering the below in a retirement:

PV= -490,962.65

N= 36

I/Y= 5

Press the CPT key and PMT to compute the amount to be saved each year.

The value obtained is 29,671.0612.

Therefore, $29,671.06 must be saved each year until retirement to meet my retirement goal.

In case of any query, kindly comment on the solution