Jeff believes he will need a $60,000 annual income during retirement. If he can achieve a 6% return during retirement and believes he will live 20 years after retirement, how much does he need to save by the time he retires, assuming he'll start drawing his money out one year after his retirement?

Question

Quizplus · Accepted Answer

First, we need to calculate how much Jeff will need to save up in total for his income needs during retirement.

$60,000 annual income x 20 years = $1,200,000 total income needed during retirement

Next, we can use the present value formula to calculate how much Jeff needs to save by the time he retires:

PV = FV / (1 + r)n

Where: 
PV = present value (how much Jeff needs to save) 
FV = future value (how much he will need) 
r = rate of return (6% in this case) 
n = number of years

Plugging in the numbers:

PV = $1,200,000 / (1 + 0.06)20 
PV = $688,200

Therefore, Jeff needs to save $688,200 by the time he retires in order to have enough money to withdraw $60,000 per year for 20 years, assuming a 6% return on his savings during retirement.

Jeff Believes He Will Need a $60,000 Annual Income During