A couple will retire in 50 years; they plan to spend about $26,000 a year in retirement, which should last about 25 years. They believe that they can earn 9% interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question

Asa Gordon

Business

11 October, 20:19

A couple will retire in 50 years; they plan to spend about $26,000 a year in retirement, which should last about 25 years. They believe that they can earn 9% interest on retirement savings. a. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Alexandra Eaton · Answer 1

Monthly payment = $797.464

Explanation:

Giving the following information:

A couple will retire in 50 years.

They plan to spend about $26,000 a year in retirement, which should last about 25 years.

They believe that they can earn 9% interest on retirement savings

n = 50

i = 0.09

FV = (26000*25) = 650000

We need to use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

We need to isolate A (monthly pay):

A = (FV*i) / [ (1+i) ^n-1]

A = (650000*0.09) / (1.09^50-1)

A = 58500/73.35752008

A = $797.464