Question

Dale is 35 years old and planning to retire at age 65. He will invest an average of $155 each month with an average annual return of 3.7% adjusted for inflation. If interest compounds monthly, how much money will Dale have in savings at the beginning of his retirement?

Answer 1

Since he is investing the same amount monthly, we have to apply annuity formula. And it is planned for the future. So that, we'll apply future value annuity formula. The formula is $FV=A[ \frac{(1+ \frac{r}{s})^{Ns} -1 }{r} ]$, where A is the monthly payment, r is the percentage rate, s is 12 (monthly compound) and N is the time, which is 30. Plugging the numbers into the formula, we write that $FV=155[ \frac{(1+ \frac{0.037}{12} )^{12*30} - 1 }{0.037} ]$ = $8485.450857