After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in your retirement account to receive this income if the annual interest rate is 9 percent per year? (Assume that the payments start one year after your retirement.)
A)$736,693.47
B)$83,431.17
C)$1,875,000
D)$1,213,487.12

Question

Quizplus · Accepted Answer

To find out how much should be saved in the retirement account, we can use the formula for the present value of an annuity: $PV = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right)$, where PV is the present value (amount needed in the retirement account), PMT is the annual payment ($75,000), r is the annual interest rate (9% or 0.09), and n is the number of years (25). Plugging in the values, we get $PV = 75,000 \times \left(\frac{1 - (1 + 0.09)^{-25}}{0.09}\right)$, which calculates to approximately $736,693.47.

After Retirement, You Expect to Live for 25 Years