Jeff believes he will need $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?

Question

Quizplus · Accepted Answer

Using the formula for present value of an annuity, we can calculate how much Jeff needs to save: 
PV = (Annual income needed during retirement / Interest rate) * (1 - (1 + interest rate)^-n), where n is the number of periods (years) Jeff will receive income in retirement. 
Plugging in the given values: 
PV = ($60,000 / 0.06) * (1 - (1 + 0.06)^-20) 
PV = $1,000,000 * (1 - 0.312) 
PV = $688,200 
Therefore, Jeff needs to save $688,200 by the time he retires.

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