You are saving for retirement. To live comfortably, you decide you will need to save $ 2 million by the time you are 65. Today is your 23 rd birthday, and you decide, starting today and continuing on every birthday up to and including your 65 th birthday, that you will put the same amount into a savings account. If the interest rate is 5 % , how much must you set aside each year to make sure that you will have $ 2 million in the account on your 65 th birthday?

Question

Harrison

Business

16 January, 05:06

You are saving for retirement. To live comfortably, you decide you will need to save $ 2 million by the time you are 65. Today is your 23 rd birthday, and you decide, starting today and continuing on every birthday up to and including your 65 th birthday, that you will put the same amount into a savings account. If the interest rate is 5 % , how much must you set aside each year to make sure that you will have $ 2 million in the account on your 65 th birthday?

+4

Answers (1)

Know the Answer?

Roberto Garrison · Answer 1

Annual deposit = $14,789.43

Explanation:

Giving the following information:

You decide you will need to save $ 2 million by the time you are 65.

The interest rate is 5 % . The number of years until 65 is 42.

We need to use the following Final Value formula:

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

A = annual deposit

Isolating A:

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

A = (2000000*0.05) / [ (1.05^42) - 1] = $14,789.43