Maria has decided that she can live on $80,000 a year upon retirement, and she expects to live for thirty years after she has retired. If she can earn an average annual rate of return of 8% after
She retires, what minimum amount must she have accumulated in her retirement account one
Year before she makes her first withdrawal in order to meet her requirement? Round your
Answer to the nearest dollar.

Question

Quizplus · Accepted Answer

To find the minimum amount Maria must have accumulated in her retirement account one year before she makes her first withdrawal, we can use the present value of an annuity formula, which is PV = PMT × [(1 - (1 + r)^-n) / r], where PV is the present value (the amount needed in the account), PMT is the annual withdrawal amount ($80,000), r is the annual rate of return (8% or 0.08), and n is the number of years (30). Plugging in the values, we get PV = $80,000 × [(1 - (1 + 0.08)^-30) / 0.08], which calculates to approximately $900,623. This is the amount Maria needs to have saved one year before her first withdrawal to meet her requirement.

Maria Has Decided That She Can Live on $80,000 a Year