Answer:
annual contribution = $6,624.25
total amount saved in 30 years = $1,089,650
Explanation:
time until retiring = 30 years
interest rate earned until retiring = 10%
she plans to live 20 years after retiring
interest rate earned after retiring = 6%
expected distribution = $95,000 per year
in order for her to be able to have the 20 payments of $95,000, she will need:
= annual payment x PV annuity factor
- annual payment = $95,000
- PV annuity factor (6%, 20 periods) = 11.470
total amount needed = $95,000 x 11.47 = $1,089,650
in order to determine the annual contribution we need to use the future value of an annuity formula:
FV = annual payment x FV annuity factor
- FV = $1,089,650
- FV annuity factor (10%, 30 periods) = 164.494
annual payment = $1,089,650 / 164.494 = $6,624.25
