You are currently 25 and would like to retire at age 45 and be able to withdraw from your savings $150,000 at the end of each year from then until age 85. You plan to save by making equal investments for the next 20 years. You believe you will earn 10% per year on your investments and will leave the money invested at 10% until it is completely used up at age 85.
Note: Present value and future value tables are needed.
How much money will you need to accumulate by the time you retire?

Question

Quizplus · Accepted Answer

To determine the amount needed by retirement, calculate the present value (PV) of the withdrawals from age 45 to 85 at a 10% annual interest rate. This involves finding the PV of an annuity of $150,000 for 40 years. Using the formula or a financial calculator, the PV of these withdrawals at age 45 is approximately $1,466,850. This is the amount needed at retirement to fulfill the withdrawal plan.

You Are Currently 25 and Would Like to Retire at Age