Question

Miguel, a recent​ 22-year old college​ graduate, wants to retire a millionaire. How much will he need to set aside annually to achieve his​ goal, assuming he plans to retire at 65 and he can earn a 10​% annual return on his​ investment?

Answer 1

Answer

Miguel must set aside $62,745 annually

Explanation

N = Number of years till Miguel would retire = 43 years

FV = Future Value = $1,000,000

r = Interest rate = 10%

PMT = Annual payments (at the ending of the year) = ?? The question asks us to calculate this

We would use the future value ordinary annuity formula to calculate PMT

FV = PMT $[\frac{(1+r )^{N} -1}{r} ]$

1000000 = PMT $[\frac{(1+0.10 )^{10} -1}{0.10} ]$

PMT ≅ $62,745

Miguel must set aside $62,745 annually