Question

Jordan wants to retire in 35 years. She wants to have $75,000 per year in retirement and she expects retirement to last for 35 years. if she can earn 8% before retirement and 5% after retirement, how much must she deposit at the end of each of the next 35 years?

Answer 1

Answer:

$7,126.78

Explanation:

First, find the present value of the annuity payments at the year Jordan retires.

You can do this question using a financial calculator using the following inputs;

Total duration; N = 35

Recurring payment ; PMT = 75,000

Required return; I/Y = 5%

Future value ; FV = 0 (note: use 0 for FV in this annuity if not given)

then CPT PV(at t=35) = 1,228,064.572

Next, to find the recurring annual payment , $1,228,064.572 would the goal that needs to be achieved hence the Future value at year 35.

FV = 1,228,064.572

N= 35

Interest rate before retirement; I/Y = 8%

PV = 0

then CPT PMT = 7,126.78

Therefore, she must deposit $7,126.78 per year.