Samuel Survivor is planning to save for retirement 35 years from now. He expects to live 25 years beyond that, and would like an annual retirement income of $38,500 after tax of 30%. What is the lump sum needed to fund retirement, at an expected annual return of 11.2%?

Question

Quizplus · Accepted Answer

To find the lump sum needed, calculate the present value of an annuity that provides $38,500 annually for 25 years at an 11.2% return. The after-tax income needed is $38,500 / (1 - 0.30) = $55,000. Using the present value of annuity formula, the lump sum needed is approximately $456,515.

Samuel Survivor Is Planning to Save for Retirement 35 Years