Question

You are saving for retirement. To live​ comfortably, you decide you will need to save $ 2 million by the time you are 65. Today is your 23 rd ​birthday, and you​ decide, starting today and continuing on every birthday up to and including your 65 th ​birthday, that you will put the same amount into a savings account. If the interest rate is 5 %​, how much must you set aside each year to make sure that you will have $ 2 million in the account on your 65 th ​birthday?

Answer 1

Answer:

Annual deposit= $14,789.43

Explanation:

Giving the following information:

You decide you will need to save $ 2 million by the time you are 65.

The interest rate is 5 %​. The number of years until 65 is 42.

We need to use the following Final Value formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (2000000*0.05)/[(1.05^42)-1]= $14,789.43