Question

You have determined that you will need to accumulate​ $1,000,000 in your retirement account in order to cover your inflation adjusted shortfall. Which of the following is closest to the amount of money you would need to put into a tax deferred retirement account every year if you plan on retiring in 40​ years? Assume an​ 8% average return on this​ account, and that it is empty today.

Answer 1

Answer:

$3,860 will be needed to put into a tax-deferred retirement account every year if you plan on retiring in 40 years

Explanation:

Use Following formula to calculate the monthly payment required.

FV = P x [ ( ( 1 + r )^n ) - 1 ) / r ]

FV = Future Value = $1,000,000

R = RATE OF RETURN = 8%

N = NUMBER OF YEARS = 40 YEARS

P = Monthly Payment

$1,000,000 = P x [ ( ( 1 + 0.08 )^40 ) - 1 ) / 0.08 ]

$1,000,000 = P x [ ( ( 1.08 )^40 ) - 1 ) / 0.08 ]

$1,000,000 = P x 259.06

P = $1,000,000 / 259.06

P = $3,860.16