To live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday. Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%

Question

Bruce Blevins

Business

19 December, 14:41

To live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday. Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%

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Answers (1)

Know the Answer?

Jayson Fowler · Answer 1

Answer: $22,143

Explanation:

Given dа ta:

Interest rate = 5%

Savings before 65 = $2,000,000

Current age = 30 years.

1) $2 milliion in the question is the future value of the annuity (the equal amount of money to be contributed every birthday) compounded at 5%.

Therefore,

2000000 = A (1.05^35 - 1) / 0.05

= A*90.3203074

A = 22,143.41

= $22,143. (amount to be set aside each year)