Assume that your father is now 50 years old, that he plans to retire in 10 years
ID: 2766733 • Letter: A
Question
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He currently earns $40,000 per year and would like the same annual income during retirement. His retirement income will begin the day he retires, 10 years from today, and he will then get 24 additional annual payments at the beginning of each year. He currently has $100,000 saved up and he expects to earn a return on his savings of 8 percent per year, annual compounding. To the nearest dollar, how much must he save during each of the next 10 years (with deposits being made at the end of each year) to meet his retirement goal? I need excel formula for this problem as well as a cash flow diagram.
Explanation / Answer
Now first calcuate the the PV of all casflows required at the age of 60
= Hence the present value
=PV(0.08,25,-40000,0,1)
=461150.33
Now this the amount he should have at age 60
100000*(1.08)^10 +x = 461150.33
x= 245257
PMT(0.08,10,0,-245257.83,0)
PMT = 16930.02
Hence 16930.02 per year should be submitted