You want to save $400 000 to supplement your pension income to retire early at age 60.You have 26 years to accomplish this and already have $90000 saved.Assuming an eight percent annual return,how much should you set aside each month to reach this goal?

Question

Quizplus · Accepted Answer

To determine the amount that needs to be set aside each month, we can use the future value formula: FV = PV(1+r)^n, where FV is the future value, PV is the present value, r is the annual interest rate, and n is the number of periods. In this case, FV = $400,000, PV = $90,000, r = 8% or 0.08, and n = 26*12 = 312 months. Plugging in these values, we get:

$400,000 = $90,000(1+0.08)^312

Solving for the monthly payment, we get:

Monthly payment = (FV/PV)^(1/n) - 1

Monthly payment = ($400,000/$90,000)^(1/312) - 1

Monthly payment = 0.0056 or 0.56%

Monthly payment = 0.0056 * $90,000 = $504

Therefore, the monthly payment needed to reach the goal is $504. Among the answer choices, only option B is closest to this amount.

You Want to Save $400 000 to Supplement Your Pension