John Adams plans to retire at the age of 62.He wants an annual income of $60,000 per year.John is currently 45 years of age.How much does he have to place at the end of each year into a retirement account earning 15 percent per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12 percent during retirement.He will draw the money at the end of each year.
A)$9,890
B)$7,764
C)$11,077
D)$6,758

Question

Quizplus · Accepted Answer

The correct answer is A.The future value of the retirement account at age 62 is:FV = $60,000 * (1 + 0.12)^25 = $4,056,322.24The present value of the retirement account at age 45 is:PV = $4,056,322.24 / (1 + 0.15)^17 = $1,054,236.46The annual contribution required to reach the retirement goal is:Contribution = $1,054,236.46 / 17 = $9,890.21

John Adams Plans to Retire at the Age of 62