Question

You are planning to save $1,000,000 for retirement over the next 30 years. If you are earning interest at the rate of 6% and you spend all the money in 20 years after retirement, what annual level of living expenses will those savings support?

Answer 1

Answer:

The retirement fund will provide 87,148.56 dollars per year during 20 years

Explanation:

The plan is to achieve 1,000,000 in 30 years.

Then we will spend them equally during a period of 20 years

We want to knwo how much will the retirement account provide.

So, we need to calculate the cuota of an annuity of 20 years with a presenet vale of 1,000,000 dollars at 6% discount rate:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

PV  $1,000,000.00

time 20 years

rate 6% = 6/100 = 0.06

$1000000 \times \frac{1-(1+0.06)^{-20} }{0.06} = C$

C  $ 87,184.56

The retirement fund will provide 87,148.56 dollars per year during 20 years